IMPORTANT NOTICE IMPORTANT: You must read the following disclaimer before continuing.

The following disclaimer applies to the attached Prospectus (the Prospectus) and you are advised to read this disclaimer carefully before reading, accessing or making any other use of the attached Prospectus. In accessing the Prospectus you agree to be bound by the following terms and conditions, including any modifications to them from time to time, each time you receive any information from the Issuer, the Company (as defined below) or the Joint Lead Managers (each as defined below) as a result of such access. The Prospectus is intended for the addressee only. NOTHING IN THIS ELECTRONIC TRANSMISSION CONSTITUTES AN OFFER OF SECURITIES FOR SALE IN THE UNITED STATES OR ANY OTHER JURISDICTION WHERE IT IS UNLAWFUL TO DO SO. THE NOTES DESCRIBED IN THE PROSPECTUS (THE NOTES) HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR OTHER JURISDICTION AND THE SECURITIES DESCRIBED IN THE ATTACHED PROSPECTUS MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT), EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE OR LOCAL SECURITIES LAWS. THE PROSPECTUS MAY NOT BE FORWARDED OR DISTRIBUTED TO ANY OTHER PERSON AND MAY NOT BE REPRODUCED IN ANY MANNER WHATSOEVER. ANY FORWARDING, REDISTRIBUTION OR REPRODUCTION OF THE PROSPECTUS IN WHOLE OR IN PART IS UNAUTHORISED. FAILURE TO COMPLY WITH THIS DIRECTIVE MAY RESULT IN A VIOLATION OF THE SECURITIES ACT OR THE APPLICABLE LAWS OF OTHER JURISDICTIONS. IF YOU HAVE GAINED ACCESS TO THIS TRANSMISSION CONTRARY TO ANY OF THE FOREGOING RESTRICTIONS, YOU ARE NOT AUTHORISED AND WILL NOT BE ABLE TO PURCHASE ANY OF THE NOTES. Confirmation of your Representation: In order to be eligible to view the Prospectus or make an investment decision with respect to the securities described in the Prospectus, investors must comply with the following provisions. You have been sent the Prospectus on the basis that you have confirmed to Goldman Sachs International, Morgan Stanley & Co. International plc, TD Investments Limited and VTB Capital plc (the Joint Lead Managers), being the senders of the attached Prospectus, that: (a) you (and each investor that you represent) are either: (A) not a U.S. person (as such term is defined in Regulation S under the Securities Act), are not investing in the Rule 144A Note and the electronic mail address that you have given to us and to which this electronic transmission has been sent is not located in the United States; or (B) a qualified institutional buyer (as such term is defined in Rule 144A under the Securities Act) (a QIB) that is also a qualified purchaser (within the meaning of Section 2(a)(51) of the United States Investment Company Act of 1940, as amended) (a QP); (b) you consent to delivery to you of the Prospectus by electronic transmission; (c) you are a prospective purchaser of the Notes and you are a relevant person (as defined below) if in the United Kingdom; (d) you will not transmit the Prospectus (or any copy of it or part thereof) or disclose, whether orally or in writing, any of its contents to any other person except with the consent of a Joint Lead Manager; and (e) you acknowledge that the Prospectus does not constitute an offer of or an invitation to subscribe for or purchase any of the Notes. By accepting this electronic transmission and accessing the Prospectus, you shall be deemed to have made the above representation and that you consent to delivery of the Prospectus by electronic transmission. The Prospectus has been prepared solely in connection with the proposed offering to certain institutional and professional investors of the Notes and is not in final form. In particular, the Prospectus refers to certain events as having occurred that have not occurred at the date it is made available but that are expected to occur prior to publication of the final prospectus. The Prospectus is an advertisement and not a prospectus prepared in accordance with Directive 2003/71/EC (the Prospectus Directive) and investors should not subscribe for or purchase securities except on the basis of information in the final

prospectus. Copies of the final prospectus will, following publication, be made available to the public in accordance with the applicable rules. Although it is intended that the final prospectus will be approved as a prospectus prepared in accordance with the Prospectus Directive, the Prospectus has not been so approved. Similarly, although it is intended that the final prospectus will be made available to the public in accordance with the Prospectus Directive, the Prospectus has not been made available in accordance therewith. The Prospectus does not constitute, and may not be used in connection with, an offer or solicitation in any jurisdiction or place where offers or solicitations are not permitted by law. If a jurisdiction requires that the offering be made by a licensed broker or dealer and the Joint Lead Managers or any affiliate of the Joint Lead Managers is a licensed broker or dealer in that jurisdiction, any offering of Notes in such jurisdiction shall be deemed to be made by the Joint Lead Managers or such affiliate on behalf of the Issuer. None of the Issuer, the Company or the Joint Lead Managers or their respective representatives or affiliates makes any representation regarding the legality of an investment by any offeree or purchaser under any investment or similar laws. Prospective investors should consult their own advisers as to the legal, tax, business, financial and other aspects of any purchase of the Notes. The Prospectus is only addressed to and directed at persons in member states of the European Economic Area that have implemented the Prospectus Directive who are qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive (Qualified Investors). In addition, the Prospectus is directed solely at (i) persons outside the United Kingdom, (ii) persons with professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 as amended (the Order), (iii) high net worth entities, or (iv) any other persons to whom an invitation or inducement to engage in investment activities may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons in (i)-(iv) above being Relevant Persons). Any investment activity to which this communication relates will only be available to and will only be engaged with relevant persons. Any person who is not a relevant person should not act or rely on this communication. The Prospectus and information contained therein do not constitute an advertisement, an offer or an invitation to make offers, sell, purchase, exchange or transfer any securities in Russia or to or for the benefit of any Russian person (including legal entities) resident, incorporated, established or having their usual residence in the Russian Federation or to any person located within the territory of the Russian Federation, unless and to the extent otherwise permitted under Russian law, and must not be made publicly available in Russia. The Notes have not been and will not be admitted to placement and/or public circulation in Russia and are not intended for offering, advertising, placement or circulation (each as defined in Russian securities laws) in the Russian Federation except as permitted by Russian law. The Prospectus has been delivered to you on the basis that you are a person into whose possession the Prospectus may be lawfully delivered in accordance with the laws of the jurisdiction in which you are located. The Prospectus has been sent to you in an electronic form. You are reminded that documents transmitted via this medium may be altered or changed during the process of electronic transmission and consequently none of Raspadskaya Securities Limited (the Issuer), Open Joint-Stock Company Raspadskaya (the Company, and the Company and its subsidiaries taken as a whole being the Group) or the Joint Lead Managers, or any person who controls them, or any director, officer, employee or agent of any of them, or their respective affiliates accepts any liability or responsibility whatsoever in respect of any difference between the attached Prospectus distributed to you in electronic format and the hard copy version available to you on request from the Joint Lead Managers. You are responsible for protecting against viruses and other destructive items. Your use of this electronic communication is at your own risk and it is your responsibility to take precautions to ensure that it is free from viruses and other items of a destructive nature. Please ensure your copy is complete. You are reminded that no representation or warranty, expressed or implied, is made or given by or on behalf of the Joint Lead Managers, nor any person who controls the Joint Lead Managers or any director, officer, employee or agent of any of them, or their respective affiliates as to the accuracy, completeness or fairness of the information or opinions contained in the Prospectus and such persons do not accept responsibility or liability for any such information or opinions. Neither this electronic transmission nor the Prospectus constitutes or contains any offer to sell or invitation to subscribe or make commitments for or in respect of any securities in any jurisdiction where such an offer or invitation would be unlawful.

26MAR201212422464
US$400,000,000 7.75 per cent. Loan Participation Notes due 2017
Issued by, but without recourse to,

RASPADSKAYA SECURITIES LIMITED

(incorporated under the laws of Ireland) for the sole purpose of financing a loan to

OPEN JOINT-STOCK COMPANY RASPADSKAYA

(incorporated under the laws of the Russian Federation)

Issue Price: 100 per cent.

Raspadskaya Securities Limited (the Issuer or the Lender is issuing US$400,000,000 in aggregate principal amount of 7.75 per cent. Loan Participation Notes due 2017 (the Notes). The Notes are limited recourse secured obligations of the Issuer, and are being offered for the sole purpose of funding a five-year loan (the Loan) to Open Joint-Stock Company Raspadskaya (the Company or the Borrower) pursuant to a loan agreement (the Loan Agreement) dated 20 April 2012 between the Issuer and the Company. The Notes will be constituted by, be subject to, and have the benefit of, a trust deed (the Trust Deed) to be dated on or about 27 April 2012 (the Closing Date) between the Issuer and Citibank, N.A., London Branch, as trustee (the Trustee), for the holders of the Notes from time to time (the Noteholders). The Issuer will charge by way of first fixed charge as security for its payment obligations in respect of the Notes its right to principal, interest and other amounts as lender under the Loan Agreement and its rights, title and interest to certain sums of money held in an account in its name with Citibank, N.A., London Branch, in each case other than the Reserved Rights (as defined in the Trust Deed) and certain amounts relating to the Reserved Rights, to the Trustee. The Issuer will also assign its administrative rights under the Loan Agreement to the Trustee. The Notes are limited recourse secured obligations of the Issuer. In each case where amounts of principal, interest and additional amounts (if any) are stated to be payable in respect of the Notes, the obligation of the Issuer to make any such payment shall constitute an obligation only to account to the Noteholders, on each date upon which such amounts of principal, interest and additional amounts (if any) are due in respect of the Notes, for an amount equivalent to all principal, interest and additional amounts (if any) actually received and retained (net of tax) by, or for the account of, the Issuer pursuant to the Loan Agreement. The Issuer will have no other financial obligations under the Notes. Noteholders will be deemed to have accepted and agreed that they will be relying solely and exclusively on the covenant to pay under the Loan Agreement and the credit and financial standing of the Company in respect of the financial servicing of the Notes. Subject to receipt by the Issuer of amounts pursuant to the Loan Agreement, interest on the Notes will be payable semi-annually in arrear in equal instalments on 27 April and 27 October in each year commencing on 27 October 2012 as described under Terms and Conditions of the Notes Interest. The Loan will bear interest of 7.75 per cent. per annum. Unless previously redeemed or cancelled, the Notes will be redeemed at their principal amount on 27 April 2017. Except as set forth herein (see Tax Considerations), payments by the Issuer of the Notes will be made without any deduction or withholding for or on account of taxes of Ireland, and payments by the Borrower under the Loan will be made without any deduction or withholding for or on account of taxes of the Russian Federation or Ireland as more fully set out, and subject to the conditions of, the Loan Agreement. The principal amount of the Loan may be prepaid, together with accrued interest, at the option of the Company upon the Company or the Issuer being required to deduct or withhold any Russian or Irish taxes from payments to be made by them in respect of the Notes or pursuant to the Loan Agreement, or following enforcement of the security created in the Trust Deed, or upon the Trustee being required to deduct or withhold any taxes of the Russian Federation or the jurisdiction in which the Trustee is then resident. As set out in the Loan Agreement, the Loan may also be prepaid if it becomes unlawful for the Loan or the Notes to remain outstanding and thereupon (subject to the receipt of the relevant funds from the Company) the principal amount of all outstanding Notes will be prepaid by the Issuer, together with accrued interest.

AN INVESTMENT IN THE NOTES INVOLVES A HIGH DEGREE OF RISK. INVESTORS SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 17 OF THIS PROSPECTUS BEFORE INVESTING IN THE NOTES.
THE NOTES AND THE LOAN (TOGETHER, THE SECURITIES) HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES AND, EXCEPT PURSUANT TO CERTAIN EXEMPTIONS, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT (REGULATION S). THE NOTES MAY BE OFFERED AND SOLD (I) WITHIN THE UNITED STATES TO QUALIFIED INSTITUTIONAL BUYERS (QIBs), AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT (RULE 144A), THAT ARE ALSO QUALIFIED PURCHASERS (QPs), AS DEFINED IN SECTION 2(A)(51) OF THE U.S. INVESTMENT COMPANY ACT OF 1940 (THE INVESTMENT COMPANY ACT) IN RELIANCE ON THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144A (THE RULE 144A NOTES) AND (II) TO NON-U.S. PERSONS IN OFFSHORE TRANSACTIONS IN RELIANCE ON REGULATION S UNDER THE SECURITIES ACT (THE REGULATION S NOTES). THE ISSUER HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE INVESTMENT COMPANY ACT. PROSPECTIVE PURCHASERS ARE HEREBY NOTIFIED THAT SELLERS OF THE RULE 144A NOTES MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A. FOR A DESCRIPTION OF THESE AND CERTAIN FURTHER RESTRICTIONS ON OFFERS, SALES AND TRANSFERS OF THE NOTES AND DISTRIBUTION OF THIS PROSPECTUS, SEE SUBSCRIPTION AND SALE AND TRANSFER RESTRICTIONS. There is currently no public market for the Notes. The Prospectus has been approved by the Central Bank of Ireland (the Central Bank) as competent authority under Directive 2003/71/EC (the Prospectus Directive). The Central Bank only approves this Prospectus as meeting the requirements imposed under Irish and EU law pursuant to the Prospectus Directive. Application has been made to the Irish Stock Exchange Limited (the Irish Stock Exchange) for the Notes to be admitted to the official list of the Irish Stock Exchange (the Official List) and trading on its regulated market (the Main Securities Market). References in this Prospectus to the Notes being listed (and all related references) shall mean that the Notes have been admitted to the Official List and have been admitted to trading on the Main Securities Market. The Main Securities Market is a regulated market for the purposes of Directive 2004/39/EC of the European Parliament and of the Council on markets in financial institutions. The Notes will be in registered form. The Notes may be held and transferred, and will be offered and sold, in the principal amount of US$200,000 and integral multiples of US$1,000 in excess thereof. Notes that are offered and sold outside the United States to non-U.S. persons in reliance on Regulation S will be represented by interests in a global registered note (the Regulation S Global Note) deposited with a common depositary (the Common Depositary) for, and registered in the name of, a nominee of Euroclear Bank SA/NV (Euroclear) or Clearstream Banking, socit anonyme ee (Clearstream, Luxembourg) on or about the Closing Date. Notes which are offered and sold in the United States to QIBs that are also QPs in reliance on Rule 144A will be represented by interests in a global registered note (the Rule 144A Global Note and, together with the Regulation S Global Note, the Global Notes) deposited with a custodian for, and registered in the name of, a nominee of The Depository Trust Company (DTC) on or about the Closing Date. Interests in the Global Notes will be shown on, and transfers thereof will be effected only through, records maintained by DTC, Euroclear and Clearstream, Luxembourg and their respective participants. Individual notes in definitive form (the Definitive Notes) evidencing holdings of Notes will only be available in certain limited circumstances. See Summary of the Provisions Relating to the Notes in Global Form. The Notes are expected to be rated B1 by Moodys Investors Service, Inc. (Moodys) and B+ by Fitch Ratings Limited (Fitch). Moodys is not established in the European Union and is not registered under Regulation (EC) No. 1060/2009 on credit rating agencies (the CRA Regulation). The ratings issued by Moodys are endorsed in accordance with the CRA Regulation by Moodys Investors Service Ltd. which is established in the European Union and registered under the CRA Regulation. Fitch is established in the European Union and is registered under the CRA Regulation. The list of credit rating agencies registered in accordance with the CRA Regulation is available on the European Securities and Market Authoritys website (http://www.esma.europa.eu/page/List-registered-and-certified-CRAs). Joint Lead Managers

Goldman Sachs International

Morgan Stanley

Troika Dialog

VTB Capital

Prospectus dated 23 April 2012

This document comprises a prospectus for the purposes of the Prospectus Directive as implemented in Ireland by the Prospectus (Directive 2003/71/EC) Regulations 2005 (the Prospectus Regulations) and has been prepared for the purpose of giving information with regard to the Issuer, the Company and the Company and its subsidiaries taken as a whole (the Group) which, according to the particular nature of the Issuer, the Company, the Group, the Notes and the Loan, is necessary to enable investors to make an informed assessment of the assets and liabilities, financial position, profit and losses and prospects of the Issuer and the Company. Each of the Issuer and the Company (whose registered office is set out on page 13 of this Prospectus) accepts responsibility for the information contained in this Prospectus. To the best of the knowledge of each of the Issuer and the Company (having taken all reasonable care to ensure that such is the case) the information contained in this Prospectus is in accordance with the facts and does not omit anything likely to affect the import of such information. In addition, the Company, having made all reasonable enquiries, confirms that (i) this Prospectus contains all information with respect to the Company, the Group, the Loan and the Notes that is material in the context of the issue and offering of the Notes; (ii) the statements contained in this Prospectus relating to the Company and the Group are in every material particular true and accurate and are not misleading; (iii) the opinions, expectations and intentions expressed in this Prospectus with regard to the Company and the Group are honestly held, have been reached after considering all relevant circumstances and are based on reasonable assumptions; (iv) there are no other facts in relation to the Company, the Group, the Loan or the Notes, the omission of which would, in the context of the issue and offering of the Notes, make any statement in this Prospectus misleading in any material respect; and (v) all reasonable enquiries have been made by the Company to ascertain such facts and to verify the accuracy of all such information and statements. Accordingly, save as set out in the immediately preceding sentence and below, the Company accepts responsibility for the information contained in this Prospectus. None of the Joint Lead Managers named under Subscription and Sale (the Joint Lead Managers) or the Trustee makes any representation or warranty, express or implied, as to the accuracy or completeness of the information in this Prospectus. Each person receiving this Prospectus acknowledges that such person has not relied on any Joint Lead Manager or the Trustee or any person affiliated with any Joint Lead Manager or the Trustee, in connection with its investigation of the accuracy of such information or its investment decision. Each person contemplating making an investment in the Notes must make its own investigation and analysis of the creditworthiness of the Company and its own determination of the suitability of any such investment, with particular reference to its own investment objectives and experience, and any other factors that may be relevant to it in connection with such investment. This Prospectus may only be used for the purpose for which it has been published. To the fullest extent permitted by law, the Joint Lead Managers accept no responsibility whatsoever for the contents of this Prospectus or for any other statement made, or purported to be made, by the Joint Lead Managers or on their behalf in connection with the Issuer, the Company or the issue and offering of the Notes. The Joint Lead Managers accordingly disclaim all and any liability whether arising in tort or contract or otherwise (save as referred to above) which they might otherwise have in respect of this Prospectus or any such statement. The Prospectus does not constitute an offer of, or an invitation by or on behalf of, the Issuer, the Company or the Joint Lead Managers to subscribe or purchase any Notes. The distribution of this Prospectus and the offering of the Notes in certain jurisdictions may be restricted by law. Persons into whose possession this Prospectus comes are required by the Issuer, the Company and the Joint Lead Managers to inform themselves about and to observe any such restrictions. The Securities have not been and will not be registered under the Securities Act. The Notes may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except pursuant to an exemption from, in a transaction not subject to, the registration requirements of the Securities Act. The Notes are being offered and sold outside the United States to non U.S. persons in reliance on Regulation S and within the United States to QIBs that are also QPs in reliance on the exemption from registration under the Securities Act provided by Rule 144A. Prospective purchasers are hereby notified that sellers of the Notes may be relying on the exemption from the provision of Section 5 of the Securities Act provided by Rule 144A. For a description of these and certain further restrictions on offers, sales and transfers of the Notes and distribution of this Prospectus, see Subscription and Sale and Transfer Restrictions. The information provided in this Prospectus is not an offer, or an invitation to make offers, to sell, exchange or otherwise transfer the Notes in the Russian Federation or to, or for the benefit of, any Russian

person or entity. No person should at any time carry out any activities in breach of the restrictions set out in Subscription and SaleRussian Federation. None of the Issuer, the Company, the Trustee or the Joint Lead Managers makes any representation regarding the legality of an investment by any offeree or purchaser under any legal investment or similar laws. Prospective investors should consult their own advisers as to the legal, business, financial and other aspects of any purchase of the Notes. Neither the Issuer nor the Company intends to provide any post-issuance or transaction reporting regarding the Notes or the performance of the Loan. No person is authorised to provide any information or to make any representation not contained in this Prospectus and any information or representation not so contained must not be relied upon as having been authorised by or on behalf of the Issuer, the Company, the Trustee or the Joint Lead Managers. The delivery of this document at any time does not imply that the information contained in it is correct as at any time subsequent to its date. Neither the delivery of this Prospectus nor the offer, sale or delivery of any Note shall in any circumstances create any implication that there has been no adverse change, or any event reasonably likely to involve any adverse change, in the condition (financial or otherwise) of the Company since the date of this Prospectus. In connection with the issue of the Notes, VTB Capital plc (the Stabilising Manager) (or any person acting on behalf of the Stabilising Manager) may over-allot Notes or effect transactions with a view to supporting the market price of the Notes at a level higher than that which might otherwise prevail. However, there is no assurance that the Stabilising Manager (or any person acting on behalf of the Stabilising Manager) will undertake stabilisation action. Any stabilisation action may begin on or after the date on which adequate public disclosure of the terms of the offer of the Notes is made and, if begun, may be ended at any time, but it must end no later than the earlier of 30 days after the Closing Date and 60 days after the date of the allotment of the Notes. Any stabilisation action or over-allotment shall be conducted in accordance with all applicable laws and rules The Prospectus will be filed with and approved by the Central Bank as required by the Prospectus Regulations. The Prospectus approved by the Central Bank will be filed with the Irish Companies Registration Office in accordance with Regulation 38(1)(b) of the Prospectus Regulations. The Issuer is not and will not be regulated by the Central Bank as a result of issuing the Notes. Any investment in the Notes does not have the status of a bank deposit and is not within the scope of the deposit protection scheme operated by the Central Bank. The contents of any websites referred to in this Prospectus do not form part of this Prospectus.

ii

NOTICE TO U.S. INVESTORS EACH PROSPECTIVE PURCHASER OF RULE 144A NOTES OR BENEFICIAL INTERESTS THEREIN, BY ACCEPTING DELIVERY OF THIS PROSPECTUS, SHALL BE DEEMED TO HAVE ACKNOWLEDGED AND AGREED THAT SUCH PROSPECTUS IS PERSONAL TO IT AND DOES NOT CONSTITUTE AN OFFER TO ANY OTHER PERSON OR TO THE PUBLIC GENERALLY TO SUBSCRIBE FOR OR OTHERWISE ACQUIRE SUCH NOTES OTHER THAN PURSUANT TO RULE 144A. DISTRIBUTION OF THIS PROSPECTUS, OR DISCLOSURE OF ANY OF ITS CONTENTS TO ANY PERSON OTHER THAN SUCH OFFEREE AND THOSE PERSONS, IF ANY, RETAINED TO ADVISE IT WITH RESPECT THERETO IS UNAUTHORISED AND ANY DISCLOSURE OF ANY OF ITS CONTENTS, WITHOUT THE PRIOR WRITTEN CONSENT OF THE ISSUER, IS PROHIBITED. NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, EXCEPT AS REASONABLY NECESSARY TO COMPLY WITH APPLICABLE SECURITIES LAWS, INVESTORS (AND EACH EMPLOYEE, REPRESENTATIVE OR OTHER AGENT OF THE INVESTORS) MAY DISCLOSE TO ANY AND ALL PERSONS, WITHOUT LIMITATION OF ANY KIND, THE U.S. FEDERAL TAX TREATMENT AND U.S. FEDERAL TAX STRUCTURE OF THE OFFERING AND ALL MATERIALS OF ANY KIND (INCLUDING OPINIONS OR OTHER TAX ANALYSES) THAT ARE PROVIDED TO THE INVESTORS RELATING TO SUCH U.S. FEDERAL TAX TREATMENT AND U.S. FEDERAL TAX STRUCTURE (AS SUCH TERMS ARE DEFINED FOR PURPOSES OF SECTIONS 6011, 6111 AND 6112 OF THE U.S. INTERNAL REVENUE CODE AND THE TREASURY REGULATIONS PROMULGATED THEREUNDER). NOTICE TO NEW HAMPSHIRE RESIDENTS NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENCE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES (RSA) WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH. UNITED STATES INTERNAL REVENUE SERVICE CIRCULAR 230 DISCLOSURE PURSUANT TO UNITED STATES INTERNAL REVENUE SERVICE CIRCULAR 230, YOU ARE HEREBY INFORMED THAT THE DESCRIPTION SET FORTH HEREIN WITH RESPECT TO UNITED STATES FEDERAL TAX ISSUES WAS NOT INTENDED OR WRITTEN TO BE USED, AND SUCH DESCRIPTION CANNOT BE USED, BY ANY TAXPAYER FOR THE PURPOSE OF AVOIDING ANY PENALTIES THAT MAY BE IMPOSED ON THEM UNDER THE UNITED STATES INTERNAL REVENUE CODE. SUCH DESCRIPTION WAS WRITTEN TO SUPPORT THE PROMOTION OR MARKETING BY THE ISSUER OF THE TRANSACTIONS OR MATTERS ADDRESSED HEREIN. TAXPAYERS SHOULD SEEK ADVICE BASED ON THEIR PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR. ADDITIONAL INFORMATION Neither the Issuer nor the Company is required to file periodic reports under Section 13 or 15 of the U.S. Securities Exchange Act of 1934, as amended (the Exchange Act). For so long as either the Issuer or the Company is not a reporting company under Section 13 or 15(d) of the Exchange Act, or exempt from reporting pursuant to Rule 12g3-2(b) thereunder, the Issuer or the Company, as the case may be, will, upon request, furnish to each holder or beneficial owner of Notes that are restricted securities (within the meaning of Rule 144(a)(3) under the Securities Act) and to each prospective purchaser thereof designated by such holder or beneficial owner upon request of such holder, beneficial owner or prospective

iii

purchaser, in connection with a transfer or proposed transfer of any such Notes pursuant to Rule 144A or otherwise, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. The language of the Prospectus is English. Certain legislative references and technical terms have been cited in their original language in order that the correct technical meaning may be ascribed to them under applicable law.

iv

PRESENTATION OF FINANCIAL AND OTHER INFORMATION This document includes audited historical consolidated financial statements of the Group as at and for the years ended 31 December 2011, 2010 and 2009 (Financial Statements) prepared in accordance with International Financial Reporting Standards (IFRS) as promulgated by the International Accounting Standards Board (IASB). Currencies. In this Prospectus, references to roubles are to the lawful currency for the time being of the Russian Federation, references to U.S. dollars and US$ are to the lawful currency for the time being of the United States of America, references to euro and E are to the lawful currency for the time being of the member states of the European Union that adopted the single currency in accordance with the Treaty of Rome establishing the European Economic Community, as amended from time to time, and references to Great Britain pound sterling are to the lawful currency of the United Kingdom of Great Britain and Northern Ireland. The Groups functional currency is the rouble, as it reflects the economic substance of its operations. The Groups presentation currency is the U.S. dollar. The Financial Statements and the Groups financial information included elsewhere in this Prospectus have, unless otherwise notes, been presented in U.S. dollars. The rouble/U.S. dollar exchange rate, published by the Central Bank of Russia (the CBR), was 32.1961 roubles per US$1.00 as of 31 December 2011, 30.4769 roubles per US$1.00 as of 31 December 2010 and 30.2442 roubles per US$1.00 as of 31 December 2009. As at the close of business on 10 April 2012 (being the last practicable date prior to the finalisation of this Prospectus), the rouble/U.S. dollar exchange rate was 29.6358 roubles per US$1.00. No representation is made that the rouble or U.S. dollar amounts referred to herein could have been or could be converted into roubles or U.S. dollars, as the case may be, at these rates, at any particular rate or at all. Rounding. Certain figures included in this Prospectus have been subject to rounding adjustments; accordingly, figures shown for the same category presented in different tables may vary slightly and figures shown as totals in certain tables may not be an arithmetic aggregation of the figures that precede them. Information not specifically defined by IFRS. The Company has included certain measures in this Prospectus that are not measures specifically defined by IFRS. These include Adjusted EBITDA, Adjusted EBITDA margin, cash cost of production and net indebtedness (or net cash position). The Company has included these measures for the reasons described below; however, these measures should not be used instead of, or considered as alternatives to, its historical financial results based on IFRS. The Company defines Adjusted EBITDA as profit for the year before foreign exchange gains or losses; change in bad debt allowance; depreciation, depletion and amortisation; dividend income; interest income and expense; gain from a bargain purchase of subsidiary, extraordinary loss on disposal of property, plant and equipment and income tax expense. Adjusted EBITDA is not a measure defined by IFRS, is not a measure of financial condition, liquidity or profitability and should not be considered as an alternative to profit for the year determined in accordance with IFRS or operating cash flows determined in accordance with IFRS. Additionally, Adjusted EBITDA is not intended to be a measure of free cash flow for the managements discretionary use, as it does not take into account certain items such as investments in the Groups associates, interest and principal payments on the Groups indebtedness, depreciation and amortisation expenses (because the Group uses capital assets, depreciation and amortisation expenses, it is a necessary element of the Groups costs and ability to generate revenue), working capital needs and tax payments (because the payment of taxes is part of the Groups operations, it is a necessary element of the Groups costs and ability to operate). The Groups management believes that inclusion of Adjusted EBITDA is appropriate to provide additional information to investors about the Groups performance and to provide a measure of results of operations unaffected by differences in capital structures, capital investment cycles and ages of related assets among otherwise comparable companies. Because not all companies calculate Adjusted EBITDA or similarly entitled measures identically, this presentation of Adjusted EBITDA may not be comparable to similarly titled measures of other companies. The Company defines Adjusted EBITDA margin as Adjusted EBITDA divided by revenue. The Company defines cash cost of production as cost of sales before transportation costs, cost of resold goods, cost of rendering services, change in finished goods, and depreciation, depletion and amortisation. The Group presents cash cost of production and other measures calculated using cash cost of production because the Groups management considers them important supplemental measures of the Groups operating performance and believes that they are frequently used by securities analysts, investors

and other interested parties in the evaluation of companies in the coal mining industry. Cash cost of production and other measures calculated using cash cost of production have limitations as analytical tools, and potential investors should not consider them in isolation, or as a substitute for analysis of the Groups results of operations as reported under IFRS. The Groups management believes that it compensates for these limitations by relying primarily on the Groups IFRS results of operations and using cash cost measures only supplementally. Cash cost of production and other measures calculated using cash cost of production are measures of the Groups operating performance that are not required by, or presented in accordance with, IFRS. Cash cost of production and other measures calculated using cash cost of production are not measurements of the Groups operating performance under IFRS and should not be considered as an alternative to profit for the year, operating profit or any other performance measures derived in accordance with IFRS. Net indebtedness/(net cash position) represents loans less deposits and cash and cash equivalents. The Groups management presents net indebtedness/(net cash position) because it considers it an important supplemental measure of the Groups financial condition. Net indebtedness/(net cash position) is not a measure defined by IFRS, is not a measure of financial condition or liquidity and should not be considered in isolation from, or as a substitute for, the Groups financial condition as reported under IFRS. Reserve information. IMC Group Consulting Limited (IMC), an international mining consultant, has produced a report (the Mineral Experts Report) dated 31 March 2012 on the coal assets of the Group as of 31 December 2011 in accordance with the criteria for internationally recognised reserve and resource categories of the Australasian Code for Reporting Mineral Resources and Ore Reserves (2004) published by the Joint Ore Reserves Committee (JORC) of the Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and the Minerals Council of Australia (the JORC Code). Data in respect of the Groups reserves included in this Prospectus have been extracted from the Mineral Experts Report which is set out in full in appendix A to this Prospectus. In preparing the Mineral Experts Report, IMC independently assessed the coal assets of the Group by reviewing pertinent data, including resources, reserves, manpower requirements, environmental issues and the life-of-mine plans relating to productivity, production, operating costs, capital expenditures and revenues. However, estimation of reserves is a subjective process of estimating underground accumulations of coal that cannot be measured in an exact manner. These estimates necessarily depend upon a number of variable factors and assumptions, many of which are beyond the Groups control. Due to the inherent uncertainties and the necessarily imprecise nature of reserves estimates the reserves amounts disclosed in this Prospectus may change as additional information becomes available and investors should not place undue reliance on the ability of the reserves estimates included in this Prospectus to predict actual reserves. Market Data. Market data used in this Prospectus, including statistics in respect of the Groups competitors sales volumes and market share, has been extracted from official and industry sources and other sources the Groups management believes to be reliable. This information has been accurately reproduced and as far as the Issuer and the Company is aware no facts have been omitted which would render the reproduced information inaccurate or misleading. This information appears throughout the Prospectus including, without limitation, in the sections headed Management Discussion and Analysis of Financial Condition and Results of Operation, Industry Overview and Description of the Groups Business, and is sourced in the text or in footnotes where it appears. Such information, data and statistics may be approximations or estimates or use rounded numbers. In particular, the data contained in the section Industry Overview has been sourced from websites of other companies involved in coking coal extraction and/or coal concentrate production, industry publications and information from news agencies. The data sourced from websites of other companies involved in coking coal extraction and/or coal concentrate production has been obtained from the websites of Anglo American, BHP Billiton, Peabody Energy, Rio Tinto, Xtrata, Wesfarmers, Mechel, Severstal and Evraz. The data sourced from industry publications has been obtained from the following sources: Ernst & Young (Global Steel2011 Trends, 2012 Outlook), Citigroup Global Markets (2012 Commodity Outlook, 8 January 2012), SourceWatch (Global Use and Production of Coal), Steelease Information & Technology Co., Ltd. (China Coking Coal and Coke Weekly Monitor), the Coke Market Survey Annual Report (November 2011), the China Steel Information Centre and Industry Database, glObserver (Mongolia Leads Coking Coal Exports in China in 2011), British Petroleum (Review of World Energy June 2011), Delovoy Kuzbass (Belon by 2017 Plans to Increase its Coal Mining by 71 per cent. and its Production of Coal Concentrate by 65 per cent.), Ugolinfo (Coal Output in Russia by Type of Coal), www.Mineral.ru, www.metcoal.ru (Matrix of Coal Concentrate Exports), Coal Investing News (2012

vi

Coal Market Outlook), Rusmet.ru (Metallurgical Industry of Russia), www.stanlib.com (Interesting Chart No. 62: ChinaWorlds Largest Consumer of Energy at 20.3 per cent. of Global Demand), the IEA World Energy Outlook 2010 (Coal-fired Electricity Generation by Region), www.caijing.com.cn (Coal Transport Deficiencies Undermine Chinas Market Economic System), Steel Orbis (WISCO appeals for official approval of Fangcheng Port Steel Base Project), the China Balance Sheet Project (China Energya Guide for the Perplexed), the World Steel Association (World Crude Steel Output Increases by 6.8 per cent.), www.m.ceip.org and www.chinaccm.com/k1. The data sourced from other news agencies has been obtained from the following sources: Thomson Reuters (Chinas Top Coal Province to Trim Coal Output), Interfax (Kailuan Group Positioned to Replace Hebei Steel Unit in Caofeidian Project), Gazeta.ru (Tavan-Tolgoi Did Not Make It to Hong Kong), Fox Business (Mongolia National Security Council Rejected Tavan Tolgoi Plan), Nezavicimaya at www.ng.ru (Elegestskoe Vozrozhdenie Tuvy), www.sibir.ria.ru (Itera Sells its Coal Asset in the Zabaikalskiy Region) and www.infox.ru. The Issuer and the Company confirm that this data has been accurately reproduced and, so far as they are aware and have been able to ascertain from that published information, no facts have been omitted which would render the reproduced information inaccurate or misleading. However, in the preparation of this Prospectus, this third party information has not been independently verified nor has there been any investigation of the validity or the methodology of, or the basis used by, the third parties in producing such data or making estimates and forecasts. The Issuer, the Company, any member of the Group and the Managers cannot give any assurance that any such information is accurate or, in respect of projected data, that such projections have been based on correct information and assumptions or that they will prove to be accurate. Some of the market data contained in this document have been derived from the official data of Russian government agencies, including the Central Bank of the Russian Federation (CBR), the Federal State Statistics Service of the Russian Federation (Rosstat), and the Federal State Unitary Enterprise Central Dispatching Department of Fuel and Energy Complex. The official data published by Russian federal, regional and local governments are substantially less complete or researched than those of Western countries. Official statistics may also be produced on different bases than those used in Western countries. Any discussion of matters relating to Russia in this Prospectus are, therefore, subject to uncertainty due to concerns about the completeness or reliability of available official and public information. The veracity of some official data released by the Russian government may be questionable.

vii

INFORMATION INCORPORATED BY REFERENCE The information set out below shall be deemed to be incorporated in, and to form part of, this Prospectus provided however that any statement contained in any document incorporated by reference in, and forming part of, this Prospectus shall be deemed to be modified or superseded for the purpose of this Prospectus to the extent that a statement contained herein modifies or supercedes such statement (whether expressly, by implication or otherwise). Any statement so modified or superseded shall not, except as so modified or superseded, constitute a part of this Prospectus. Copies of documents incorporated by reference in this Prospectus will be made available, free of charge, during usual business hours at the registered office of the Issuer and the specified offices of the Trustee and the Principal Paying Agent in London during normal business hours, unless such documents have been modified or superseded. Issuers audited historical financial statements as at and for the years ended 31 December 2009 and 2010 which have been filed with the Irish Stock Exchange.

viii

ENFORCEABILITY OF CIVIL LIABILITIES IN RUSSIA The Company is an Open Joint-Stock Company incorporated under the laws of the Russian Federation. All of its assets are currently located outside the United Kingdom and the United States. In addition, all of the directors and executive officers of the Company are residents of countries other than the United Kingdom and the United States. As a result, it may not be possible for investors to: effect service of process within the United Kingdom or the United States upon any of the directors or executive officers of the Company named in this Prospectus; or enforce, in courts located within the United Kingdom or the United States, judgments obtained in courts in jurisdictions located outside the United Kingdom and the Unites States against the Company or any of its respective directors or executive officers in any action. In addition, it may be difficult for investors to enforce, in original actions brought in courts in jurisdictions located outside the United Kingdom or the United States, liabilities predicated upon English law or U.S. securities laws. Judgments rendered by a court in any jurisdiction outside the Russian Federation will be recognised by courts in the Russian Federation only if: (i) an international treaty providing for the recognition and enforcement of judgments in civil cases exists between the Russian Federation and the country where the judgment is rendered; and/or (ii) a federal law of the Russian Federation provides for the recognition and enforcement of foreign court judgments. No such treaty exists between the Russian Federation, on the one hand, and the United Kingdom or the United States, on the other hand, for the reciprocal enforcement of foreign court judgments and no relevant federal law on enforcement of foreign court judgments has been adopted in the Russian Federation. However, the Company and the Issuer are also aware of at least two instances in which Russian courts have recognised and enforced foreign court judgements (including an English court judgment), on the basis of the principle of reciprocity and (in case of an English court judgement) the existence of a number of bilateral and multilateral treaties to which both the United Kingdom and the Russian Federation are parties. The courts determined that such treaties constituted grounds for the recognition and enforcement of the relevant English court judgment in the Russian Federation. In the absence of established court practice, however, it is difficult to predict whether a Russian court will be inclined in any particular instance to recognise and enforce an English court judgment on these grounds. In addition, Russian courts have limited experience in the enforcement of foreign court judgments. These limitations may deprive investors of effective legal recourse for claims related to their investment in the Notes. The possible need to re-litigate in the Russian Federation a judgment obtained in a foreign court on the merits may significantly delay the enforcement of such judgment. The Loan Agreement is governed by English Law. The Lender and the Company have agreed that any dispute or difference arising from or in connection with the Loan Agreement shall be settled by arbitration in accordance with the Rules of the LCIA (formerly known as the London Court of International Arbitration) unless the Lender elects, by notice in writing to the Company, to have the dispute settled by proceedings brought in the courts of England. The Russian Federation is a party to the 1958 United Nations (New York) Convention on the Recognition and Enforcement of Foreign Arbitral Awards. A foreign arbitral award obtained in a state which is party to that convention should be recognised and enforced by a Russian court (subject to the qualifications provided for in the convention and compliance with Russian civil procedure regulations and other procedures and requirements established by Russian legislation). However, it may be difficult to enforce arbitral awards in the Russian Federation due to the relative inexperience of the Russian courts in international commercial transactions, unofficial political resistance to the enforcement of awards against Russian companies in favour of foreign investors and corruption.

ix

FORWARD-LOOKING STATEMENTS This Prospectus contains forward-looking statements that relate to, without limitation, the Groups plans, objectives, goals, strategies, future operations and performance. These forward-looking statements are characterised by words such as anticipates, estimates, expects, believes, intends, plans, may, will, should and similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause circumstances or the Groups actual results, performance or achievements to be materially different from any future circumstances, results, performance or achievements expressed or implied by such statements. Such forward-looking statements are inherently based on numerous assumptions regarding, among other things: the performance of the Russian and world-wide economy; the effects of Russian and international political events; the effects of, and changes in, the policy of the Russian government; availability of funding in domestic and international capital markets; future prices and demand for the Groups products and demand for the Groups customers products; coal mine reserves potential; production forecasts of coal; trends in the coal industry and domestic and international coal market conditions; risks in coal mining; future expansion plans and capital expenditures; the Groups relationship with and other conditions affecting the Groups customers; competition; railroad and other transportation performance costs; availability of specialist and qualified workers; and acts of war, terrorist acts, geopolitical events, pandemic or other such events, natural and other disasters, weather conditions or other catastrophic weather-related damage. The Group does not make any representation, warranty or prediction that the results anticipated by such forward-looking statements will be achieved, and such forward-looking statements represent, in each case, only one of many possible scenarios and should not be viewed as the most likely or standard scenario. Accordingly, prospective purchasers of the Notes should not rely on these forward-looking statements. The important factors that could cause the Groups actual results, performance or achievements to differ materially from those in these forward-looking statements include, but are not limited to, those discussed in Risk Factors and Description of the Groups Business. These forward-looking statements speak only as at the date of this Prospectus. The Group expressly disclaims any obligation or undertaking to disseminate after the date of this Prospectus any updates or revisions to any forward-looking statements contained herein to reflect any change in the Groups expectation with regard thereto or any change in events, conditions or circumstances on which any such forward-looking statement is based, unless required to do so by applicable law.

CONTENTS
Page

PRESENTATION OF FINANCIAL AND OTHER INFORMATION . . . . . . . . . . . . . . . . INFORMATION INCORPORATED BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . . ENFORCEABILITY OF CIVIL LIABILITIES IN RUSSIA . . . . . . . . . . . . . . . . . . . . . . . FORWARD-LOOKING STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OVERVIEW OF THE GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OVERVIEW OF THE TRANSACTION STRUCTURE AND THE SECURITY . . . . . . . . OVERVIEW OF THE OFFERING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CAPITALISATION AND INDEBTEDNESS OF THE GROUP . . . . . . . . . . . . . . . . . . . . SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION . . . . . . . . . MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . INDUSTRY OVERVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DESCRIPTION OF THE GROUPS BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . MANAGEMENT AND CORPORATE GOVERNANCE . . . . . . . . . . . . . . . . . . . . . . . . . SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . RELATED PARTY TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . REGULATION OF THE COAL MINING INDUSTRY IN RUSSIA . . . . . . . . . . . . . . . . . THE ISSUER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . LOAN AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TERMS AND CONDITIONS OF THE NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SUMMARY OF THE PROVISIONS RELATING TO THE NOTES IN GLOBAL FORM . TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SUBSCRIPTION AND SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TRANSFER RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CERTAIN ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . APPENDIX AMINERAL EXPERTS REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . INDEX TO FINANCIAL STATEMENTS OF THE GROUP . . . . . . . . . . . . . . . . . . . . . .

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. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

v viii ix x 1 11 13 17 46 47 48 53 80 90 114 121 122 125 134 136 167 177 180 190 193 200 201 A-1 F-1

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OVERVIEW OF THE GROUP This overview highlights information contained elsewhere in this Prospectus. The following overview should be read in conjunction with, and is qualified in its entirety by reference to, the more detailed information and the Financial Statements and notes thereto included elsewhere in this Prospectus. Investing in the Notes involves risks. Investors should also consider the matters set forth under Risk Factors before deciding to invest in the Notes. Certain statements in this Prospectus include forward-looking statements that also involve risks and uncertainties as described under Forward-Looking Statements. Overview of the Group Overview The Group was one of Russias largest producers of coking coal based on volume of production in 2011 (Source: Federal State Unitary Enterprise Central Dispatching Department of Fuel and Energy Complex (CDU TEK)). The Group conducts its business through the Company and 11 of its key subsidiaries located in the Kemerovo region of the Russian Federation. Its principal coal-mining and coal-processing operations consist of three underground mines (the Raspadskaya mine, the MUK-96 mine and the Raspadskaya-Koksovaya mine), one open-pit mine (the Raspadsky open pit) and the Raspadskaya coal concentrate preparation plant. The Group extracted 6.3 million tonnes of raw coal in 2011, 7.2 million tonnes of raw coal in 2010 and 10.6 million tonnes of raw coal in 2009. It produced 3.8 million tonnes of coal concentrate in 2011, 5.2 million tonnes of coal concentrate in 2010 and 7.8 million tonnes of coal concentrate in 2009. The Groups management believes that the Groups reserves of coking coal are one of the largest in Russia. See Industry OverviewRussian Coking Coal Market. The Groups reserves and resources of coking coal, measured as of 31 December 2011 according to the JORC Code, consisted of coking coal proved and probable reserves of 1,314 million tonnes, coking coal measured resources of 1,809 million tonnes and coking coal inferred resources of 262 million tonnes. See Appendix AMineral Experts Report1.5.2 Reserves and Resources Statement. In 2011, the Group had revenue of US$726.1 million, Adjusted EBITDA of US$319.7 million and profit for the year of US$135.7 million. The Groups Adjusted EBITDA margin and net profit margin were 44.0 per cent. and 18.7 per cent., respectively, in that year. In 2010, the Group had revenue of US$705.6 million, Adjusted EBITDA of US$337.6 million and profit for the year of US$244.3 million. The Groups Adjusted EBITDA margin and net profit margin were 47.9 per cent. and 34.6 per cent., respectively, in 2010. Recent Developments First Quarter Operating Results Announcement On 6 April 2012, the Company announced the following preliminary operating results for the first quarter of 2012. The table below sets forth the Groups total raw coal production and sales (of raw coal and coal concentrate) in the first quarter of 2012, the fourth quarter of 2011 and the first quarter of 2011, as well as the percentage change between the relevant periods in 2011 and the first quarter of 2012.
% change % change between three between three Three months ended months ended months ended 31 March 31 December 31 March 31 March 2012 and 31 March 2012 and 2012 2011 2011 31 December 2011 31 March 2011

Total raw coal production (in thousands of tonnes) . . . . . . . . . . . . . . Sales (in thousands of tonnes) ConcentrateRussia . . . . . . . . . . . . . Concentrateexport . . . . . . . . . . . . . Total sales of concentrate* . . . . . . . . . Total sales of raw coal** . . . . . . . . . . Weighted average price of concentrate sold (U.S.$ /tonnes) (FCA Mezhdurechensk)(1) . . . . . . . . . . . . . . Average Exchange rate (RUB/U.S.$) .
* ** (1) Semi-hard coking coal Hard coking coal

1,591 864 71 935 137 128.3 30.26

1,582 936 33 969 151 150.0 31.23

1,775 935 0 935 360 147.1 29.27

1% (8)% 116% (4)% (9)% (14)% (3)%

(10)% (8)% 0% (62)% (13)% 3%

. . . . . .

The prices for the first quarter of 2012 are preliminary and may immaterially differ from the final.

The overall raw coal production in the first quarter of 2012 totaled 1.59 million tonnes, which exceeded the production levels of the fourth quarter of 2011 by one per cent., but is lower than the Groups production plan. The key factors affecting production volumes in the reporting period were as follows: mining and geological conditions (shifts in rock formations) of faces at Raspadskaya mine and at MUK-96 mine in February and at Raspadskaya-Koksovaya mine in March; and a temporary suspension of works at MUK-96 mine and at Raspadskaya mine during the month of March due to regulatory inspections of underground mining works. In the first quarter of 2012, as compared to the fourth quarter of 2011, coal concentrate and raw coal sales volumes decreased by four per cent. and nine per cent., respectively. External negative factors affecting sales volumes in the reporting period were as follows: reduced demand for steel products; and lower orders for coal products from major customers due to reduced production of most Russian coke and metallurgical producers. At the same time, the Company announced the following with respect to its ongoing operating activities in April 2012: the Company expects to commence mining a new face #4-9-23 at Raspadskaya mine, with coal reserves exceeding 2.2 million tonnes, in the middle of April; the Company expects to expand its customer base in Ukraine, with the intention of gradually increasing export sales volumes during the second quarter; and in April, the Company expects to resume its export sales in the Asia-Pacific region through Far East ports in the amount of 50 thousand tonnes of coal concentrate (for the month). Other Recent Developments On 15 November 2011, the Companys board of directors approved a decision to acquire up to 78,079,980 (or up to approximately ten per cent.) ordinary registered undocumented shares of the Company, with the nominal value of 0.004 roubles per share, at the price of 150 roubles per share. The period for submission of applications for the share buyback commenced on 19 December 2011 and expired on 31 January 2012. The total number of shares of the Company in relation to which applications for buyback had been properly submitted was 1,008,652,121 shares. According to Federal Law No. 208-FZ of 26 December 1995 On Joint Stock Companies, as amended (the JSC Law), it is prohibited for Russian companies to acquire more than 10 per cent. of their own shares. In accordance with the JSC Law, on 6 February 2012, the board of directors of the Company approved a coefficient of proportional purchase of 0.077410217. Therefore, by 2 April 2012, the Company entered into share purchase agreements with all shareholders that properly submitted their applications agreeing to acquire their shares on a pro rata basis. The Groups management currently expects that the Company will complete the buyback of its shares in the second quarter of 2012. In the first quarter of 2012, the Group received a loan from Raiffeisenbank in the principal amount of US$150 million. The funds received from Raiffeisenbank were used for general corporate purposes. In March 2012, the Company entered into a non-revolving credit line agreement with OAO Sberbank of Russia (Sberbank). This agreement allows the Company to borrow up to US$300 million. To date, no funds have been borrowed thereunder. Key Strengths The Groups management believes that the Groups key competitive strengths are as follows: The Group was one of Russias largest producers of coking coal in 2011 The Group was one of Russias largest producers of coking coal based on volume of production in 2011 (Source: CDU TEK). The Groups ability to produce large volumes of coking coal concentrate has resulted in many large Russian steel companies, such as Evraz (one of the Companys Controlling Shareholders), MMK, NLMK and several other Russian metallurgical and coke producing companies such as Koks, Mechel and Urals Steel, relying on the Group to supply their coke producing plants with a large proportion of the coal products that are required to operate their businesses. The Groups

management believes that such companies rely on the Group for coking coal concentrate supply because, in the past (prior to the major accident at the Raspadskaya mine in May 2010), the Group was able to consistently satisfy its delivery obligations in respect of the requested types of coal concentrate or raw coal for its major customers. Even after the accident in May 2010, when coal extraction at the Raspadskaya mine was completely suspended for several months, the Group only reduced the volume of its deliveries to the Russian market by approximately 15 per cent. as compared to its contractual obligations. In addition, the Group has extensive experience in selling coal concentrate outside Russia, which is particularly important in the event of a decrease in demand for coal concentrate from Russian metallurgical companies as, for instance, happened in 2009 due to the impact of the global financial and economic crisis on the Russian steel industry. The Groups status as a leading Russian coking coal concentrate producer has helped it to build a strong brand name in several markets in Asia and Europe, making it easier to sell its products in these markets. The Group has a large high-quality coking coal reserves and resources base According to IMC, as of 31 December 2011, the Group had proved and probable coking coal reserves of 1,314 million tonnes, coking coal measured resources of 1,809 million tonnes and coking coal inferred resources of 262 million tonnes. At the 2011 level of coal extraction, the Groups reserves are of sufficient size to enable the Group to extract coal for over 90 years. Moreover, the coal reserves and resources found in the coal field No. 1 and coal field No. 2 of the Raspadskaya-Koksovaya mine, to which RaspadskayaKoksovaya, a wholly-owned subsidiary of the Company, holds the licences, are classified under the Russian classification system as grade K (coking) and grade KO (coking semi-lean). The Groups management believes that these grades of coal would be classified as hard coking coal under the international classification system. As of 31 December 2011, the Groups proved and probable reserves, measured resources and inferred resources of coals of grades K (coking) and KO (coking semi-lean) were 136 million tonnes 233 million tonnes and 142 million tonnes, respectively. Coking coals of grades K (coking) and KO (coking semi-lean) are not widely available in Russia and are in high demand both in Russia and abroad due to their lower volatility and high coking ability. Increased volume of extraction of such grade K (coking) and grade KO (coking semi-lean) coal is expected to help the Group to diversify its product range and better address the needs of its customers. The Group benefits from integrated business operations located at a single production complex The Groups management believes that the Group is one of very few large Russian coal mining companies that has integrated business operations located at a single production complex. The Groups mines and production facilities, which are located not far from the town of Mezhdurechensk in the Kemerovo region of Russia, include three underground mines, one open-pit mine and a coal concentrate preparation plant, as well as the Groups own coal and coal concentrate transportation network operated by the Companys subsidiary TPTU, which connects the Groups production complex to the federal railway network at the Mezhdurechensk railway station. In addition, the Groups sales and marketing is entirely managed by the Companys subsidiary Raspadskiy Ugol, which is located at the Groups head office in Mezhdurechensk. Furthermore, the Companys subsidiaries OShPU, which is involved in shaft sinking at the Groups mines, and Montazhnik Raspadskoy, which supplies the Groups operations with ancillary equipment, are also located within the single production complex. Thus, the Groups integrated structure enables it to effectively monitor and control the entire value chain from the commencement of shaftsinking when a new mine construction project is initiated to coal extraction and subsequent coal concentrate preparation and then to delivery of coal concentrate or raw coal from the Groups facilities to the federal railway network. The Groups integrated operations also allow it to significantly reduce the need for outsourcing to third parties work related to mine development, coal extraction or coal concentrate preparation, which allows the Group to reduce overall costs of its products. The Raspadskaya coal concentrate preparation plant commenced operations in the fourth quarter of 2005 when the first phase of its development project was completed after a two-year construction period. As a result, the Group became able to process coal of Russian grades Zh (fat), GZh (gas fat) and GZhO (gas fat semi-lean) extracted at the Raspadskaya mine, the MUK-96 mine and the Raspadsky open pit. Phase two of the development project was completed in 2008, increasing the plants annual design capacity to 10.5 million tonnes and actual production capacity to 15 million tonnes of raw coal processed. Based on the assumption of 7,200 hours of operation per year, which is being achieved by other new coal concentrate preparation plants in Kuzbass, the Groups management expects that the Raspadskaya coal concentrate preparation plant could achieve a maximum

annual throughput of 17.3 million tonnes of raw coal. See Appendix AMineral Experts Report6.3 Plant Performance. Following the completion of phase two of the plants development project, the Group also became able to process coal of Russian grades K (coking) and KO (coking semi-lean). The construction and expansion of operations of the Raspadskaya coal concentrate preparation plant has allowed the Group to reduce and then eliminate the need for outsourcing of preparation of coal concentrate from raw coal extracted at the Groups mines, which allowed it to better monitor the quality of coal concentrate produced, provide customers with requested product characteristics and reduce overall costs. The Group has an experienced management team The Groups senior managers have extensive experience in the coal mining industry and have successfully transformed the Group into one of the largest coking coal mining companies in Russia. The current general director (CEO) of Raspadskaya Coal Company, the Groups management company, Gennady I. Kozovoy, assumed such position in April 2003 and had previously served as the Companys general director (CEO) from December 1993 through June 2003. He began working at the Raspadskaya mine in 1978. The current chairman of the Companys board of directors, Alexander S. Vagin, has served in such capacity since December 1993 and has served as first deputy general director of Raspadskaya Coal Company since March 2004. He began working at the Raspadskaya mine in 1983. Mr. Kozovoy and Mr. Vagin are supported by a competent team of senior managers with extensive experience in the coal mining industry. The Groups management believes that extensive experience of the Groups senior managers in the coal mining industry will help the Group to correctly identify and successfully implement its strategic objectives. Moreover, the Groups management believes that its mining engineers, both at a senior and middle level, have extensive industry experience and considers them to be among the best mining engineers in Russia. Strategy The Groups key strategies include the following: Complete the reconstruction programme for Raspadskaya mine In May 2010, the Group experienced a major accident at its Raspadskaya mine. Two methane explosions on 8 and 9 May 2010 resulted in the death of 91 miners and rescuers. Coal mining at the Raspadskaya mine was completely suspended for several months. SeeOperationsCoal miningThe Raspadskaya mineAccident at the Raspadskaya mine in May 2010 for a more detailed description of this accident. The reconstruction of the Raspadskaya mine, which is being implemented in line with a series of reconstruction projects developed by ZAO Giprougol (Giprougol), one of the largest institutions in Russia involved in project development for enterprises in the coal mining industry, consists of four stages. The first stage involved a re-start of coal mining at face 4-9-21 bis (seam 9) with coal reserves of approximately 600 thousand tonnes. The Group recommenced coal extraction at face 4-9-21 bis on 16 December 2010 and has already completed the extraction of coal at this face. The second stage of the reconstruction project involves re-commencement of operations at three different faces (at coal seams 7-7a and 9) and work has already started in October 2011 at face 4-7-25 with coal reserves of approximately 1.4 million tonnes. The Group is currently involved in preparatory work at face 4-9-23, which is expected to allow it to restart work at this face in April 2012. Giprougol is continuing to develop project documentation for the third and fourth stages of reconstruction of the Raspadskaya mine, which would need to be approved by Federal Autonomous Enterprise Head Department of the State Examination (Glavgosekspertiza), the state agency responsible for approval of all new construction and reconstruction projects in the coal mining industry. See Risk FactorsRisks Related to the Groups BusinessThe pace of the reconstruction of the Raspadskaya mine has thus far been slower than initially expected by the Groups management and may continue to fall further behind schedule in the future for a description of potential regulatory hurdles faced by the Group in connection with the reconstruction of the Raspadskaya mine. In 2011, the Group extracted 1.3 million tonnes of coal at the Raspadskaya mine. Increase efficient and safe extraction of coking coal reserves In addition to the reconstruction of the Raspadskaya mine, the Groups management intends to increase annual extraction of coal at all of the other Groups mines. Under current plans for the development of the MUK-96 mine, the Raspadskaya-Koksovaya mine and the Raspadsky open pit, the output of these mines is expected to increase from 1.3 million tonnes, 0.9 million tonnes and 2.7 million tonnes, respectively, in 2011 to 3.0 million tonnes, 1.7 million tonnes and 3.5 million tonnes in 2015,

bringing the expected aggregate output of all four mines to 16.7 million tonnes in that year. The increase in the coal output of these three mines is expected to be achieved principally due to significant capital expenditures, which are currently expected to reach 1.3 billion roubles in 2012 and 2.0 billion roubles in 2013 for the Raspadskaya-Koksovaya mine, 0.5 billion roubles in 2012 and 0.8 billion roubles in 2013 for the MUK-96 mine and 0.3 billion roubles in 2012 and 0.8 billion roubles in 2013 for the Raspadsky open pit. There can be no assurance, however, that the Group will be able to achieve such an increase in output of its mines. These planned coal extraction volumes for 2015 are based upon a number of assumptions and estimates that, while considered reasonable by the Groups management, are inherently subject to significant business, operational, economic, competitive and regulatory uncertainties and contingencies, many of which are beyond the Groups control, and upon assumptions in respect of future business decisions that are subject to change. No assurance can be given that the strategy will be effective or that the anticipated benefits from the strategy will be realised in the period up to and including 2015, or at all. Accordingly, the Group cannot provide any assurance that these planned coal extraction volumes for 2015 will be achieved. The actual output of each mine and the aggregate output of all four mines may vary materially from the currently planned coal extraction volumes. Important factors that could cause differences to arise include changing business or other market conditions, general economic conditions in Russia, China or other markets for the Groups products, and the Groups ability to respond to trends in the coal mining industry. Additional factors could cause actual results to differ materially. Prospective investors in the Notes are cautioned not to place undue reliance on this information and make their own projections about the Groups future operational performance on the basis of their own examination of the Group and the contents of this Prospectus. See Forward-Looking Statements and Risk Factors. Moreover, the Group seeks continued expansion of its coal reserves through the selective acquisition of licences, further geological exploration work and reclassification of its extensive resources into reserves. For example, based on the results of the auction conducted by the Federal Agency for Subsoil Use (Rosnedra) on 21 March 2012, ZAO Razrez Raspadsky, a wholly-owned subsidiary of the Company, obtained a right to develop a Road coal field of the Raspadskoye bituminous coal deposit that has Category C1 reserves (under the Russian classification system) of 5.6 million tonnes. See Appendix A Mineral Experts Report1.5.1 GKZ Categorisation of Reserves and Resources under JORC for the discussion of the Russian classification system and its differences with JORC. Further strengthen market position in Russia The Group is already one of the largest suppliers of coking coal in Russia (Source: CDU TEK). The Groups management intends to further improve the Groups market position by continuing to be known as a coal concentrate supplier of choice in Russia that is able to consistently satisfy its delivery obligations to major Russian customers and to benefit from high quality of its coal concentrate products. The Group has already signed framework long-term supply contracts with many of its existing customers, including OAO Evraz United West Siberian Iron and Steel Plant and OAO Evraz Nizhny Tagil Iron and Steel Plant, both of which are subsidiaries of Evraz (one of the Companys Controlling Shareholders), MMK, NLMK, Koks, Mechel and Urals Steel and has recently added significant new customers such as Stroyservice (the owner of Gubakhinsky coke producing plant) and Severstal. The Groups management believes that this policy allows the Group to (i) improve demand for the Groups coal concentrate products, (ii) more accurately estimate the maximum amount of coal concentrate and raw coal the Group can sell each year in the domestic market and (iii) maintain its long-term relationships with its largest domestic customers. The Group also plans to strengthen its domestic market position by steadily increasing the output of its Raspadskaya-Koksovaya mine, which produces coal of Russian grades K (coking) and KO (coking semi-lean), demand for which in Russia generally exceeds available supply. The Group was effectively required to sell all of its raw coal extracted at coal field No. 1 at the Raspadskaya-Koksovaya mine to Evraz in 2010 and 2011 and is also required to sell to Evraz coal concentrate produced from 1,080 thousand tonnes of raw coal extracted at the Raspadskaya-Koksovaya mine each year from 2012 to 2019 under the terms of a long-term agreement with Evraz related to the sale of ZAO Koksovaya to the Group in April 2010. The Group extracted 419 thousand tonnes and 945 thousand tonnes of coal at the RaspadskayaKoksovaya mine in 2010 and 2011, respectively. As the output of this mine exceeds 1,080 thousand tonnes in the future, sales of such coal to customers other than Evraz are expected to help the Group to diversify its product range and better address the needs of such customers.

Increase the volume of coal concentrate sold outside Russia Prior to the accident at the Raspadskaya mine in May 2010, the Group was going through a shift in its exports strategy, with Asian markets becoming increasingly important for the Group. In 2010, Asian countries became the Groups largest export market for the first time in its history, with the proportion of the Asian markets in the Groups coal concentrate sales volume outside Russia reaching 72 per cent. in that year as compared to just 22 per cent. in 2009. After the accident at the Raspadskaya mine, the Group temporarily suspended all exports of its products. In October 2011, the Group resumed limited sales to Ukraine (accounting for approximately one per cent. of its total sales for 2011). As the Group has an established delivery infrastructure for sales to Asian countries (such as Japan, Republic of Korea and China) and Ukraine, the Groups management intends to increase the proportion of sales of coal concentrate outside Russia in the Groups total sales of coal concentrate and raw coal as the reconstruction of the Raspadskaya mine continues. Current plans envision increasing sales outside Russia to approximately 30 to 35 per cent. of the Groups total sales in the future. Asian markets, particularly Japan and Republic of Korea, are expected to be particularly significant for the Groups future export sales. The Chinese market, however, is adversely affected by a large volume of low priced Mongolian supplies of coking coal and is not currently viewed by the Groups management as one of the priority markets for exports expansion. For additional information on competition in the Chinese coking coal market, see Appendix AMineral Experts Report7.2.2 China. The exact geographic location and identity of customers outside Russia will be determined on the basis of several parameters, including terms of delivery, price levels, supply volumes, availability of premium payments and discounts, terms of use of port facilities and capacity of border-crossings and railways. Maintain financial discipline and focus on profitability The Groups management intends to continue to maintain the Groups cost leadership in respect of the Russian coking coal market in terms of cash costs of coal extraction and coal concentrate preparation. In particular, the Groups management currently expects that as coal extraction at the Raspadskaya mine increases due to progress in the reconstruction of this mine after the May 2010 accident, the cash cost of coal concentrate production per tonne of coal concentrate produced by the Group will decrease in rouble terms. In addition, the Group follows a policy according to which all investment decisions must be aligned with the goal of maximising returns on the capital employed. Risk Factors An investment in the Notes involves risks, including those relating to or arising from the Groups business and industry, political, social, economic, legislative and legal risks associated with the Russian Federation and risks arising from the nature of the Notes and the markets upon which they are or are expected to be traded, including the following risks relating to the Groups business and industry: The pace of the reconstruction of the Raspadskaya mine has thus far been slower than initially expected by the Groups management and may continue to fall further behind schedule in the future; The Group is subject to mining risks; The Group operates in a cyclical industry and may be adversely affected by any local or global downturn in the coking coal, coke and steel markets and by the volatility of macroeconomic conditions; The Groups operations are dependent on having received the required licences, permits and approvals from governmental authorities. The Groups licences may be suspended, amended or terminated prior to the end of their terms or may not be renewed; The Group depends on third parties for transportation of its products across significant distances; expenditures on transportation could increase and delays in delivery of the Groups products harming its reputation; The Groups management believes that competition in the Russian and the global coking coal industries is increasing and the Groups business and prospects could be adversely affected if the Group is not able to compete effectively;

 The Group does not carry all of the types of insurance coverage customary in other more developed countries for a business of the Groups size and nature, and the Group may be unable to obtain adequate insurance cover; Increasing labour costs could have an adverse effect on the Groups operations; The Groups business may be affected by shortages of skilled labour and labour disputes; Stricter environmental laws and regulations or stricter enforcement of existing environmental laws and regulations in Russia may have a material adverse effect on the Groups business, results of operations, financial condition and prospects; The Groups operations could be adversely affected if it fails to comply with applicable health and safety laws, regulations or rules or instructions of the relevant health and safety authorities; Estimates of the Groups reserves and resources are subject to uncertainties; The Group has a material weakness in internal control systems; The Group heavily depends on its senior management and other key personnel; The Group is, and is expected to continue to be, controlled by the Controlling Shareholders (as defined in Risk Factors), and their interests or interests of the shareholders of Evraz Group S.A. (Evraz) could conflict with the Groups interests, interests of other Controlling Shareholders and/or the interests of the Noteholders; The Group must make significant capital expenditures in order to increase its coal extraction and coal concentrate production levels and improve overall efficiency; A significant reduction in purchases by the Groups largest customers could adversely affect the Groups revenue; Weather conditions in the areas where the Groups mines and production facilities and the Groups key customers are located may disrupt operations; Insufficient or negative net assets of some companies in the Group could lead to their forced liquidation; Fluctuation in the exchange rate of the rouble against the U.S. dollar could adversely affect the Groups operations; The Group has engaged in the past and may engage in the future in transactions with related and other parties that may present conflicts of interest; and The Group is involved in arbitration proceedings with the Federal Antimonopoly Service (the FAS). An adverse outcome of such arbitration proceedings could result in a finding that the Group violated Russian law on protection of competition and a significant fine for the Group. The foregoing is not a comprehensive list of the risks and uncertainties to which the Group is subject. Investors should carefully consider all of the information in this Prospectus including information in the section Risk Factors, prior to making an investment in the Notes.

Summary Consolidated Financial and Operating Information The following tables set forth, in full or in summary form, consolidated financial information and operational information relating to the Group. This information should be read in conjunction with the section entitled Managements Discussion and Analysis and the Financial Statements, including the notes to the Financial Statements, included elsewhere in this Prospectus. The following table represents the Groups income statement for the years presented.
Year ended 31 December 2011 2010 2009 (in thousands of U.S. dollars)

Revenue Sale of goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selling and distribution costs . . . . . . . . . . . . . . . . . . . General and administrative expenses . . . . . . . . . . . . . Social and social infrastructure maintenance expenses . Loss on disposal of property, plant and equipment . . . Foreign exchange gains/(losses) . . . . . . . . . . . . . . . . . Other operating income . . . . . . . . . . . . . . . . . . . . . . Other operating expenses . . . . . . . . . . . . . . . . . . . . . Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain from a bargain purchase of subsidiary . . . . . . . . Profit before income tax . . . . . . . . . . . . . . . . . . . . . . Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . Profit for the year . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) (2) (3)

. . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . .

707,970 686,343 483,831 18,131(1) 19,263(2) 13,216(3) 726,101 705,606 497,047 (358,805) (325,008) (263,176) 367,296 380,598 233,871 (4,543) (3,504) (2,583) (60,879) (52,026) (40,600) (9,117) (5,867) (5,396) (7,057) (44,100) (1,179) (10,754) 1,826 (15,529) 9,512 5,075 1,553 (95,926) (92,653) (7,061) 188,532 189,349 163,076 23 3 12 16,865 16,519 12,322 (28,132) (26,500) (25,307) 104,735 177,288 284,106 150,103 (41,571) (39,788) (32,966) 135,717 244,318 117,137

Including US$9,520 thousand in revenue from sales of other goods. Including US$13,498 thousand in revenue from sales of other goods. Including US$8,477 thousand in revenue from sales of other goods.

The following table represents the Groups statement of financial position at 31 December 2011, 2010 and 2009.
At 31 December 2011 2010 2009 (in thousands of U.S. dollars)

Assets Non-current assets Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current assets Inventories . . . . . . . . . . . . . . . . Trade and other receivables . . . . Prepayments . . . . . . . . . . . . . . . Receivables from related parties Income tax receivable . . . . . . . . Other taxes recoverable . . . . . . Short-term bank deposits . . . . . Cash and cash equivalents . . . . .

1,461,779 49,206 5,258 1,516,243

1,529,894 22,553 5,718 1,558,165 77,199 47,329 12,749 32,621 7,806 15,866 158,384 164,628 516,582 2,074,747

1,409,708 2,108 35,958 1,447,774 44,274 73,970 17,800 73,385 3,406 11,136 149,953 28,277 402,201 1,849,975

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

84,046 60,033 4,614 39,785 2,763 10,361 80,179 180,100 461,881 1,978,124

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity and liabilities Equity attributable to equity holders of the parent Issued capital . . . . . . . . . . . . . . . . . . . . . . . . . . . Additional paid-in capital . . . . . . . . . . . . . . . . . . Reserve capital . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated profits . . . . . . . . . . . . . . . . . . . . . . Unrealised gain on available-for-sale investments . Translation difference . . . . . . . . . . . . . . . . . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

303 784,139 7 543,859 1,487 (272,382) 1,057,413 4,486 1,061,899

303 783,862 7 907,359 2,058 (194,515) 1,499,074 5,257 1,504,331 302,387 151,862 22,200 11,703 488,152 41,088 19 8,216 2,504 4,855 25,404 178 82,264 2,074,747

303 783,862 7 662,605 1,655 (179,485) 1,268,947 5,735 1,274,682 303,320 140,496 19,542 1,567 464,925 43,410 3,095 28,407 1,274 7,455 26,449 278 110,368 1,849,975

Non-controlling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-current liabilities Long-term loans . . . . . . . . . . . . . . Deferred income tax liabilities . . . . Post-employment benefits liabilities Site restoration provision . . . . . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

1,243 136,242 23,045 9,937 170,467

Current liabilities Trade and other payables . . . . . . . . Advances from customers . . . . . . . . Short-term loans and current portion Payables to related parties . . . . . . . . Income tax payable . . . . . . . . . . . . . Other taxes payable . . . . . . . . . . . . Share buyback liability . . . . . . . . . . Dividends payable . . . . . . . . . . . . . .

.. .. of .. .. .. .. ..

............ ............ long-term loans ............ ............ ............ ............ ............

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

45,863 49 304,027 2,262 4,324 25,337 363,771 125 745,758 1,978,124

Total equity and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The following table represents the Groups selected cash flow data for the years presented.
Year ended 31 December 2011 2010 2009 (in thousands of U.S. dollars)

Net cash from operating activities . . . . . . . . . . . . . . . . Net cash used in investing activities . . . . . . . . . . . . . . . Net cash used in financing activities . . . . . . . . . . . . . . . Cash and cash equivalents at the beginning of the year . Cash and cash equivalents at the end of the year . . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

232,712 307,905 221,621 (44,151) (128,746) (209,603) (164,376) (42,892) (49,538) 164,628 28,277 71,555 180,100 164,628 28,277
Year ended 31 December 2011 2010 2009

The following table represents the Groups other financial and operating data for the years presented.

Other financial data: Adjusted EBITDA(1) (in millions of U.S. dollars) . . . . . . . . . . . . . . . . . . . Adjusted EBITDA margin(2) (in percentages) . . . . . . . . . . . . . . . . . . . . . Cash cost of production(3) (in thousands of U.S. dollars) . . . . . . . . . . . . . Cash cost per tonne of coal concentrate produced(4) (in thousands of U.S. dollars per tonne) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital expenditures(5) (in thousands of U.S. dollars) . . . . . . . . . . . . . . . . Net indebtedness/(net cash position) at the end of the year(6) (in thousands of U.S. dollars) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating data: Coking coal extracted (in thousands of tonnes) . . . . . . . . . . . . . . . . . . . . Coal concentrate produced (in thousands of tonnes)(7) . . . . . . . . . . . . . . .
(1)

319.7 44.0 231,748 49.7 144,437 44,991 6,251 3,765

337.6 47.9 165,286 28.2 137,570

255.1 51.3 151,617 19.5 153,163

(12,409) 122,255 7,160 5,246 10,560 7,810

Adjusted EBITDA represents profit for the year before foreign exchange gains or losses; change in bad debt allowance; depreciation, depletion and amortisation; dividend income; interest income and expense; gain from a bargain purchase of subsidiary, extraordinary loss on disposal of property, plant and equipment and income tax expense. Adjusted EBITDA is not a measure defined by IFRS, is not a measure of financial condition, liquidity or profitability and should not be considered as an alternative to profit for the year determined in accordance with IFRS or operating cash flows determined in accordance with IFRS. Additionally, Adjusted EBITDA is not intended to be a measure of free cash flow for the managements discretionary use, as it does not take into account certain items such as investments in the Groups associates, interest and principal payments on the Groups indebtedness, depreciation and amortisation expenses (because the Group uses capital assets, depreciation and amortisation expenses, it is a necessary element of the Groups costs and ability to generate revenue), working capital needs and tax payments (because the payment of taxes is part of the Groups operations, it is a necessary element of the Groups costs and ability to operate). The Groups management believes that inclusion of Adjusted EBITDA is appropriate to provide additional information to investors about the Groups performance and to provide a measure of results of operations unaffected by differences in capital structures, capital investment cycles and ages of related assets among otherwise comparable companies. Because not all companies calculate Adjusted EBITDA or similarly entitled measures identically, this presentation of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by revenue. Cash cost of production represents cost of sales before transportation costs, cost of resold goods, cost of rendering services, change in finished goods, and depreciation, depletion and amortisation. The Group presents cash cost of production and other measures calculated using cash cost of production because the Groups management considers them important supplemental measures of the Groups operating performance and believes that they are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the coal mining industry. Cash cost of production and other measures calculated using cash cost of production have limitations as analytical tools, and potential investors should not consider them in isolation, or as a substitute for analysis of the Groups results of operations as reported under IFRS. The Groups management believes that it compensates for these limitations by relying primarily on the Groups IFRS results of operations and using cash cost measures only supplementally. Cash cost of production and other measures calculated using cash cost of production are measures of the Groups operating performance that are not required by, or presented in accordance with, IFRS. Cash cost of production and other measures calculated using cash cost of production are not measurement of the Groups operating performance under IFRS and should not be considered as an alternative to profit for the year, operating profit or any other performance measures derived in accordance with IFRS. Raw coal has been restated in tonnes of coal concentrate at the output ratio of 73.2 per cent. for 2011, 76.9 per cent. for 2010 and 73.4 per cent. for 2009. Capital expenditures are defined as cash used for purchases of property, plant and equipment. Net indebtedness/(net cash position) represents loans less deposits and cash and cash equivalents. The Groups management presents net indebtedness/(net cash position) because it considers it an important supplemental measure of the Groups financial condition. Net indebtedness/(net cash position) is not a measure defined by IFRS, is not a measure of financial condition or liquidity and should not be considered in isolation from, or as a substitute for, the Groups financial condition as reported under IFRS. Semi-hard coking coal.

(2) (3)

(4) (5) (6)

(7)

For reconciliation of the Groups Adjusted EBITDA to its profit, of the Groups cash cost of production to its cost of sales and of the Groups net indebtedness (or net cash position) to loans and borrowings for the years presented, see Selected Historical Consolidated Financial Information.

10

OVERVIEW OF THE TRANSACTION STRUCTURE AND THE SECURITY The following summary description should be read in conjunction with, and is qualified in its entirety by, the Terms and Conditions of the Notes and the provisions of the Loan Agreement which are set out elsewhere in this Prospectus.
Principal and Interest on the Loan

The Issuer
Loan

The Company

Payments of amounts received under the Loan

Proceeds of the Notes

Noteholders

30MAR201212303412
The transaction will be structured in the form of a loan by the Issuer to the Company. The Issuer will issue the Notes, which will be limited recourse secured loan participation notes of the Issuer issued for the sole purpose of funding the Loan to the Company. The Notes will be constituted by, be subject to, and have the benefit of, the Trust Deed. The obligations of the Issuer to make payments under the Notes shall constitute an obligation only to account to the Noteholders for an amount equal to the sums of principal, interest and/or additional amounts (if any) actually received by and retained (net of tax) or for the account of the Issuer pursuant to the Loan Agreement, less any amount in respect of the Reserved Rights (as defined in the Trust Deed). As provided in the Trust Deed, the Issuer will charge by way of first fixed charge in favour of the Trustee for the benefit of the Noteholders as continuing security for its payment obligations in respect of the Notes (the Charge): (a) all principal, interest and other amounts payable by the Company to the Issuer as lender under the Loan Agreement; (b) the right to receive all sums that may be or become payable by the Company under any claim, award or judgment relating to the Loan Agreement; and (c) all the rights, title and interest in and to all sums of money now or in the future deposited in an account with Citibank, N.A., London Branch in the name of the Issuer (the Account) specified in the Loan Agreement and the debts represented thereby (including interest from time to time earned on the Account, if any), provided that Reserved Rights and any amounts relating to Reserved Rights are excluded from the Charge. In addition, the Issuer with full title guarantee will assign absolutely to the Trustee for the benefit of the Trustee and the Noteholders all the rights, title, interest and benefits, both present and future, that have accrued or may accrue to the Issuer as lender under or pursuant to the Loan Agreement (including, without limitation, all monies payable to the Issuer and any claims, awards and judgments in favour of the Issuer in connection with the Loan Agreement and the right to declare the Loan immediately due and payable and to take proceedings to enforce the obligations of the Company thereunder) other than any

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rights, title, interests and benefits which are subject to the Charge and other than the Reserved Rights and any amounts relating to the Reserved Rights. As a consequence of such assignment, the Trustee will assume the rights of the Issuer under the Loan Agreement as set out in the relevant provisions of the Trust Deed. The Issuer will covenant not to agree to any amendments to or any modification or waiver of, or authorise any breach of, the terms of the Loan Agreement unless the Trustee has given its prior written consent. The Issuer will further agree to act at all times in accordance with any instructions of the Trustee from time to time with respect to the Loan Agreement (subject to being indemnified and/or secured to its satisfaction by the Company), save as otherwise provided in the Trust Deed and except in relation to the Reserved Rights. Any amendments, modifications, waivers or authorisations made with the Trustees consent shall be notified to the Noteholders in accordance with Condition 13 of the Terms and Conditions relating to the Notes and shall be binding on the Noteholders. The security under the Trust Deed will become enforceable upon the occurrence of a Relevant Event (as defined in the Trust Deed). The Issuer will have no other financial obligations under the Notes and no other assets of the Issuer will be available to Noteholders. Accordingly, all payments to be made by the Issuer under the Notes will be made only from and to the extent of such sums received by or on behalf of the Issuer or the Trustee from the assets securing the Notes. Noteholders shall look solely to such sums for payments to be made by the Issuer under the Notes, the obligation of the Issuer to make payments in respect of the Notes will be limited to such sums and Noteholders will have no further recourse to the Issuer or any of the Issuers other assets in respect thereof. In the event that the amount due and payable by the Issuer under the Notes exceeds the sums so received, the right of any person to claim payment of any amount exceeding such sums shall be extinguished, and Noteholders may take no further action to recover such amounts.

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OVERVIEW OF THE OFFERING Issuer . . . . . . . . . . . . . . . . . . . . . . . The Borrower . . . . . . . . . . . . . . . . . . Raspadskaya Securities Limited Raspadskaya (Open Joint-Stock Company) with its registered office at Mira Street 106, 652870 Mezhdurechensk, Russian Federation US$400,000,000 7.75 per cent. Loan Participation Notes due 2017 US$400 million Citibank, N.A., London Branch Citibank, N.A., London Branch Citigroup Global Markets Deutschland AG 100 per cent. of the principal amount of Notes. 27 April 2017 On each Interest Payment Date, being 27 April and 27 October in each year commencing on 27 October 2012, the Issuer shall account to the Noteholders for an amount equivalent to amounts of interest actually received by or for the account of the Issuer pursuant to the Loan Agreement, which interest under the Loan is equal to 7.75 per cent. per annum (as set out in Clause 4 of the Loan Agreement). The Notes are limited recourse secured obligations of the Issuer. The Notes will constitute the obligation of the Issuer to apply the proceeds from the issue of the Notes solely for the purpose of financing the Loan and to account to the Noteholders for amounts equivalent to sums of principal, interest and additional amounts (if any) actually received by or for the account of the Issuer pursuant to the Loan Agreement, less any amount in respect of Reserved Rights, all as more fully described in Terms and Conditions of the Notes. The obligations of the Company under the Loan will rank at least pari passu with the claims of all its other present and future unsecured creditors, save for those preferred by mandatory provisions of applicable law. The Notes will be secured by a first fixed charge on: all principal, interest and other amounts payable by the Company to the Issuer as Lender under the Loan Agreement; the right to receive all sums payable by the Company under any claim, award or judgment relating to the Loan Agreement; and all of the Issuers rights, title and interest in and to all sums of money held from time to time in an account specified in the Loan Agreement, together with the debts represented thereby (including interest from time to time earned thereon, if any), pursuant to the Trust Deed, in each case, other than certain Reserved Rights and the Issuers right to any amounts in respect of such Reserved Rights and the proceeds of the Notes used to fund the Loan on the date of the Trust Deed.

Notes Offered . . . . . . . . . . . . . . . . . . Principal Amount of the Notes . . . . . Trustee . . . . . . . . . . . . . . . . . . . . . . Principal Paying Agent and Transfer Agent . . . . . . . . . . . . . . . . . . . . . . Registrar . . . . . . . . . . . . . . . . . . . . . Issue Price of Notes . . . . . . . . . . . . . Maturity Date . . . . . . . . . . . . . . . . . Interest . . . . . . . . . . . . . . . . . . . . . .

Status of the Notes . . . . . . . . . . . . . .

Status of the Loan . . . . . . . . . . . . . .

Security . . . . . . . . . . . . . . . . . . . . . .

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Assignment of Rights . . . . . . . . . . . .

The Issuer with full title guarantee will assign absolutely its rights under the Loan Agreement (save for those rights charged or excluded as described above) to the Trustee upon the closing of the offering of the Notes. The Notes will be issued in fully registered form in the denominations of US$200,000 and higher integral multiples of US$1,000. Notes which are offered and sold outside the United States to non U.S. persons in reliance on Regulation S will be represented by interests in the Regulation S Global Note deposited with a Common Depositary for, and registered in the name of a nominee of, Euroclear and Clearstream, Luxembourg on or about the Closing Date. Notes which are offered and sold in the United States to U.S. persons that are QIBs and QPs in reliance on Rule 144A will be represented by interests in the Rule 144A Global Note deposited with a custodian for, and registered in the name of a nominee of, DTC on or about the Closing Date. The Global Notes will be exchangeable for Definitive Notes only in the limited circumstances described under Summary of the Provisions Relating to the Notes in Global Form. In limited circumstances as more fully described in the Loan Agreement and the Conditions, the Notes may be redeemed at the option of the Issuer in whole, but not in part, at any time, upon giving notice to the Trustee, at the principal amount thereof, together with accrued and unpaid interest and additional amounts, if any, to the date of redemption in the event that: (i) it becomes unlawful for the Issuer to fund the Loan or allow the Loan to remain outstanding under the Loan Agreement or allow the Notes to remain outstanding; (ii) the Company elects to repay the Loan in the event that it is required to pay additional amounts on account of (a) Russian or Irish withholding taxes in respect of certain payments under the Loan or (b) as a result of the enforcement of security provided for in the Trust Deed; or (iii) the Company elects to repay the Loan in the event that it is required to pay additional amounts for whatever reason in respect of certain payments under the Loan. In the case of certain events in relation to the Issuer (as defined in the Trust Deed), the Trustee may, subject as provided in the Trust Deed, enforce the security created in the Trust Deed in favour of the Noteholders. All payments in respect of the Notes by or on behalf of the Issuer and all payments under the Loan Agreement on behalf of the Company will be made free and clear of, and without deduction or withholding for or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or on behalf of Ireland (in the case of the Issuer) or Russia (in the case of the Company) or any political subdivision or any authority thereof or therein having the power to tax, other than, in each case, as required by law. In such event, the sum payable by the Company to the Issuer under the Loan Agreement will be required (subject to certain exceptions) to be increased to the extent necessary to ensure that the Noteholders receive the sum which they would have received had no such deduction or withholding been required. The sole obligation of the Issuer in this respect will be to account to the Noteholders for sums

Form and Initial Delivery of Notes . .

Early Redemption by the Issuer in Limited Circumstances . . . . . . . . .

Relevant Events . . . . . . . . . . . . . . . .

Withholding Tax . . . . . . . . . . . . . . . .

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equivalent to the sums received from the Company pursuant to the Loan Agreement. Negative Pledge . . . . . . . . . . . . . . . . Events of Default . . . . . . . . . . . . . . . The Issuer will have the benefit of a negative pledge granted by the Company, as fully described in the Loan Agreement. In the case of an Event of Default (as defined in the Loan Agreement), the Trustee may, subject as provided in the Trust Deed, declare all amounts payable under the Loan Agreement by the Company to be due and payable. The proceeds from the issue of the Notes will be used by the Issuer for the sole purpose of financing the Loan. The Company will apply the net proceeds of the Loan to repay its outstanding 7.5 per cent. loan participation notes in the amount of US$300 million due in May 2012 and for general corporate purposes. The Issuer may from time to time, without the consent of the Noteholders, create and issue further Notes on the same terms as the Notes and such further Notes shall be consolidated and form a single series with the Notes. If further Notes are treated as being issued with original issue discount for U.S. federal income tax purposes, this may adversely affect the market price of the Notes. The Notes are expected to be rated B1 by Moodys and B+ by Fitch A rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the assigning rating organisation. Similar ratings on different types of notes do not necessarily mean the same thing. The ratings do not address the likelihood that the principal on the Notes will be prepaid or paid on a particular date before the legal final maturity date of the Notes. The ratings do not address the marketability of the Notes or any market price. Any change in any credit rating of the Notes could adversely affect the price that a subsequent purchaser will be willing to pay for the Notes. The significance of each rating should be analysed independently from any other rating. Listing and Trading . . . . . . . . . . . . . The Prospectus has been approved by the Central Bank as competent authority under the Prospectus Directive. The Central Bank only approves this Prospectus as meeting the requirements imposed under Irish and EU law pursuant to the Prospectus Directive. Application has been made to the Irish Stock Exchange for the Notes to be admitted to the Official List and to trading on the Main Securities Market. The Notes, the Loan, the Agency Agreement, the Trust Deed, the Subscription Agreement and any non-contractual obligations arising out of or in connection with them, shall be governed by, and construed in accordance with, English law. The Notes have not been, and will not be, registered under the Securities Act and, subject to certain exceptions, may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (as defined in Regulation S). The Issuer has not been and will not be registered under the Investment Company Act. The Issuer is relying on the exemption from the requirements of the Investment Company Act provided by Section 3(c)(7) thereof. The Notes may be offered and sold (i) within the United States to QIBs that are

Use of Proceeds . . . . . . . . . . . . . . . .

Further Issues . . . . . . . . . . . . . . . . .

Ratings . . . . . . . . . . . . . . . . . . . . . .

Governing Law . . . . . . . . . . . . . . . . .

Selling Restrictions . . . . . . . . . . . . . .

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also QPs in reliance on the exemption from registration provided by Rule 144A; and (ii) to non-U.S. persons in offshore transactions in reliance on Regulation S. The Notes may be sold in other jurisdictions (including, without limitation, the United Kingdom, Russia and Ireland) only in compliance with applicable laws and regulations. See Subscription and Sale. Risk Factors . . . . . . . . . . . . . . . . . . . An investment in the Notes involves a high degree of risk. For a discussion of certain issues that should be considered by prospective purchasers of the Notes, see Risk Factors. Regulation S ISIN: XS0772835285 Regulation S Common Code: 077283528 Rule 144A ISIN: US75406KAA51 Rule 144A Common Code: 077477799 Rule 144A CUSIP: 75406KAA5 The Notes (or any interest in the Notes) may not be acquired or held by or on behalf of any employee benefit plan that is subject to Title I of the United States Employee Retirement Income Security Act of 1974, as amended (ERISA), a plan that is subject to Section 4975 of the U.S. Internal Revenue Code of 1986, as amended (the Code) or by any entity whose underlying assets are deemed for purposes of ERISA or the Code to include plan assets by reason of such employee benefit plans or plans investment in the entity deemed to constitute the assets of such a plan (Benefit Plan Investors). See Certain ERISA Considerations.

Security Codes . . . . . . . . . . . . . . . . .

ERISA . . . . . . . . . . . . . . . . . . . . . . .

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RISK FACTORS An investment in the Notes involves a high degree of risk. Prospective investors should carefully consider the risks described below and the other information contained in this Prospectus before making a decision to invest in the Notes. Any of the following risks, individually or together, could adversely affect the Groups business, results of operations, financial condition and prospects, in which case the trading price of the Notes could decline and investors could lose all or part of their investment. The Group has described the risks and uncertainties that the Groups management believes are material, but these risks and uncertainties may not be the only ones the Group faces. Additional risks and uncertainties, of which the Groups management is currently not aware or which the Groups management currently deems immaterial, may also have a material adverse effect on the Groups business, results of operations, financial condition and prospects. Prospective investors should be aware that the value of the Notes and any income from them may go down as well as up and that investors may not be able to realise their initial investment. RISKS RELATED TO THE GROUPS BUSINESS The pace of the reconstruction of the Raspadskaya mine has thus far been slower than initially expected by the Groups management and may continue to fall further behind schedule in the future The successful, on-time and on-budget reconstruction of the Raspadskaya mine is critically important for the Groups business, results of operations, financial condition and prospects. The significance of the Raspadskaya mine for the Groups operations is clearly demonstrated by the fact that in 2009, the last full year before the major accident at the Raspadskaya mine in May 2010, this mine accounted for 64.9 per cent. of the total volume of coking coal extracted by the Group. For the description of the accident at the Raspadskaya mine and its consequences for the Group, seeThe Group is subject to mining risks immediately below and Description of the Groups BusinessOperationsCoal miningThe Raspadskaya mineAccident at the Raspadskaya mine in May 2010. Several months after the accident, the Groups management developed a medium-term programme of the Groups production development for the period from 2011 to the end of 2015, which incorporated the reconstruction targets for the Raspadskaya mine. This medium-term programme envisioned the start of coal mining operations at four new faces at the Raspadskaya mine in the course of 2011 with a goal of extracting 2,500 thousand tonnes of coal at this mine in 2011. However, the Group commenced coal mining at only one additional face at the Raspadskaya mine in 2011 and the total volume of extracted coal at this mine only reached 1,253 thousand tonnes in that year. The delay in commencing coal mining at the other three faces was principally due to slower than expected work of Giprougol, a Russian research institute involved in preparing projects for all four stages of the reconstruction of the Raspadskaya mine and delays in approval of such projects by Glavgosekspertiza, the state agency responsible for approval of all new construction and reconstruction projects in the coal mining industry. There could be further delays associated with the commissioning of capacities at Raspadskaya mine as a result of Giprougol falling further behind the original timetable for the completion of the third and the fourth stage reconstruction projects. In addition, state regulators (principally Glavgosexpertiza and the Federal Service for Environmental, Technological and Nuclear Supervision (Rostekhnadzor) may exercise a higher than usual level of caution in approving such projects or in allowing the Group to expand its activities at the mine that was subject to such a devastating accident in May 2010 and in which fire is still burning underground (albeit isolated and contained). If any such delays in reconstruction projects completion or project approval occur, or if any other significant risks associated with the reconstruction materialise, the Group may suffer further delays in completing the reconstruction of the Raspadskaya mine and/or its expenditures on such reconstruction may significantly exceed the Groups managements estimates, which could have a material adverse effect on the Groups business, results of operations, financial condition and prospects. The Group is subject to mining risks The Groups coal mining operations are subject to the hazards and risks normally associated with the exploration and extraction of natural resources, any of which could result in extraction shortfalls or

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damage to persons or property. In particular, hazards associated with the Groups underground coal mining operations include: underground fires and explosions, including those caused by methane and coal dust; cave-ins or ground falls; discharges of gases and toxic chemicals; flooding; sinkhole formation and ground subsidence; and other accidents and conditions resulting from drilling, blasting and removing and processing material from an underground mine. Hazards associated with the Groups open-pit mining operations include: flooding of the open pit; collapses of the open-pit walls; accidents associated with the operation of large open-pit mining and rock transportation equipment; accidents associated with large-scale open-pit blasting operations; production disruptions due to weather; and hazards associated with the disposal of waste water, such as groundwater and waterway contamination. The occurrence of any of these hazards could delay coal extraction, increase extraction costs and result in injury to, or death of, the Groups employees or contractors and damage to property, as well as liability or reputational damage for the Group. The Group has been adversely affected by some of these hazards in the past. Two methane explosions at the Raspadskaya mine on 8 and 9 May 2010 resulted in the death of 91 miners and rescuers. Coal mining at the Raspadskaya mine was completely suspended for several months. Mining operations resumed at one face in December 2010 and at one additional face in the course of 2011. But the coal extraction volume has not yet reached the pre-accident level as of the date of this Prospectus. The Groups management expects that the Group will be able to reach such pre-accident level within the next several years. In addition, underground fire continues in a part of the Raspadskaya mine. Although the parts of the mine in which coal is currently being extracted or in which new faces are being prepared have been segregated from the part which contains the fire, and the Company will continue its efforts to contain and eventually extinguish the fire, there is no guarantee that these efforts will be timely and successful, which may interfere with the Groups projected timeline of returning the mine to its pre-accident level of production. As a result of the accident at the Raspadskaya mine, in 2010, the Group recognised a disposal (de-recognition) of property, plant and equipment in the amount of US$39.4 million. In addition, in 2010, expenditures associated with the reconstruction of the Raspadskaya mine after the May 2010 accident were US$93.0 million, including payments and accruals to the families of the deceased and to the injured employees in the amount of US$6.3 million. In 2011, expenditures associated with the reconstruction of the Raspadskaya mine after the May 2010 accident amounted to US$90.6 million. The Groups management currently estimates that total expenditures on reconstruction of the Raspadskaya mine are not expected to exceed US$280 million, of which US$183.6 million was already incurred by 31 December 2011. The cause of the explosions at the Raspadskaya mine in May 2010 is still unclear. Accordingly, while the Group has employed sophisticated equipment and safety procedures at the Raspadskaya mine in the past and has further improved the safety equipment and procedures used at the mine after the accident, there can be no assurance that such explosion or other serious accident will not occur in the future. The occurrence of any serious accidents at any of the Groups mines in the future could have a material adverse effect on the Groups business, results of operations, financial condition and prospects.

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The Group operates in a cyclical industry and may be adversely affected by any local or global downturn in the coking coal, coke and steel markets and by the volatility of macroeconomic conditions As almost all of the Groups revenue is derived from sales of coal concentrate and raw coking coal, the Groups business and operating results are substantially dependent on the domestic and global demand for those products. The major consumers of the Groups coal concentrate and raw coal are large domestic and foreign steel producers, which need these products from the Group for their coke producing plants, and, to a lesser extent, other coke producers. The domestic and global coke and steel markets are cyclical and exhibit fluctuation in demand from year to year. The prices for coke and steel products are also influenced by many factors other than demand, such as, worldwide production capacity, capacity utilisation rates, raw material costs, foreign currency exchange rates, trade barriers and improvements in production processes. Fluctuations in demand for steel and coke and steel and coke production strongly affect the market for both coal concentrate and raw coking coal and the production levels and supply of these products. The demand for the Groups products generally positively correlates with macroeconomic conditions in those economies in which the Groups principal current and potential customers are located, which, in addition to Russia, include Japan, Republic of Korea, China and Ukraine. After the onset of the global financial and economic crisis in the autumn of 2008, there was a steep downturn in the global economy, sparked by uncertainty in credit markets and deteriorating consumer confidence. The crisis sharply reduced demand for the Groups products in Russia and abroad and caused sharp decreases in prices of such products. Therefore, the crisis had a pronounced negative effect on the Groups business, results of operations, financial condition and prospects. The Groups revenue decreased by almost sixty per cent. between 2008 and 2009. While global financial markets stabilised and the performance of most economies improved in the second half of 2009 and in 2010, global macroeconomic conditions and particularly conditions in the eurozone remained volatile throughout the period under review. In Europe, massive government borrowing to finance bailouts of financial and other institutions, as well as large fiscal stimulus packages, have led to a deterioration of sovereign credit of many governments, including the governments of Greece, Ireland, Portugal, Italy, Spain and a number of other European countries. Doubts have also been raised about the stability of the European monetary system. In 2010, 2011 and the beginning of 2012, Greece negotiated two bailout packages with its creditors to avoid defaulting on its outstanding obligations. Uncertainty surrounding the outcome of these negotiations resulted in widening credit spreads, reduced liquidity and reduced access to funding in the global financial markets. A risk of contagious effects of the Greek sovereign debt crisis on other countries, in particular Italy, Spain, Portugal and Ireland, has intensified these adverse effects on the global financial markets. By the end of 2011, the sovereign debt crisis in Europe also started to have a more significant adverse effect on economic growth. GDP for both 17 states in the eurozone and for all 27 EU countries decreased by 0.3 per cent. in the fourth quarter of 2011 as compared to the previous quarter Source: (Eurostat website), which also affected growth in other parts of the world, including the United States, China and Russia. There can be no assurance that the disruptions in the global capital and credit markets in connection with a sovereign debt crisis could not be amplified or replicated in other countries, including Russia, on a more significant scale in the near future. Global credit and capital markets remain volatile and there can be no assurance that a further economic downturn or a full-scale crisis will not occur. If global macroeconomic conditions deteriorate again, the outlook for coking coal and coal concentrate producers, such as the Group, could worsen significantly. In particular, a significant and prolonged recession in Russia, or significantly slower growth or the spread of recessionary conditions to economies which are potential consumers of the Groups coal concentrate, may result in a material adverse effect on the Groups business, results of operations, financial condition and prospects. The Groups operations are dependent on having received the required licences, permits and approvals from governmental authorities. The Groups licences may be suspended, amended or terminated prior to the end of their terms or may not be renewed The Groups business depends on the issuance, validity and renewal of its licences, particularly subsoil licences for its mining operations. The Group currently conducts its mining operations in Russia under licences that expire over time, with the principal subsoil licences expiring between 2014 and 2057. The licence to extract coal at the Raspadskaya mine, for instance, expires in 2014. The continued validity and extension of these licences, including the licence to extract coal at the Raspadskaya mine, are conditional upon the Groups compliance with the terms of the respective licences, which generally include obligations to restore the mined land, maintain a certain level of production, comply with the industrial safety and

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technical standards, monitor certain environmental indicators and comply with environmental laws, periodically submit information to the licensing authorities and others. The Russian authorities may suspend or terminate a licence held by one of the Groups companies if the licensee does not comply with the significant or material terms of the licence. These terms are not defined in the legislation and are open to interpretation by the authorities. See Regulation of Coal Mining Industry in Russia included elsewhere in this Prospectus for further information on regulation of coal mining in Russia. On 19 April 2011, the Federal Agency for Subsoil Use (Rosnedra) issued a notification to ZAO RaspadskayaKoksovaya listing breaches under its principal subsoil licence KEM 11578 TE, which were as follows: positive approval of Glavgosexpertiza for the design project of the first stage of construction was not obtained; required statistical reports were not submitted to the Ministry of Natural Resources and Ecology for the year ended 31 December 2008; certain facilities for the mines infrastructure were not constructed; and production level specified in the licence agreement was not reached. The notification required ZAO Raspadskaya-Koksovaya to cure these breaches within six months. The Group cured most of the above-mentioned breaches by October 2011. On 1 December 2011, Rosprirodnadzor issued an order requiring ZAO Raspadskaya-Koksovaya to ensure that an annual level of coal extraction under the terms and conditions of licence KEM 11578 TE be reached by the end of 2012. Although the Group has not been subject to revocation of any of its subsoil licences to date, there can be no assurance that the Russian authorities will not suspend or terminate such licences if the licensed entities within the Group are found to be not in compliance with material terms of the relevant licences or fail to cure the breaches under relevant licence in the future or fail to extract coal on the terms and in volumes prescribed in the respective licences, which would have a material adverse effect on the Groups business, results of operations, financial condition and prospects. Article 10 of the Law on Subsoil Resources of 21 February 1992, as amended (the Subsoil Law), provides that a licence to use a field may be extended at the initiative of the licence holder if the licence holder complies with the terms of the licence and if the exploration, appraisal or development of the field requires completion, or remediation operations need to occur. The Group intends to extend its licences as needed, including renewing its Raspadskaya mine licence that expires in 2014. Although this has not occurred to date with any of the Groups subsoil licences, if Rosnedra determines that the terms of a licence were not complied with, such extension may be denied, which could have a material adverse effect on the Groups business, results of operations, financial condition and prospects. Moreover, any future changes in Russias regulatory regime of the coal industry may impose additional costs on the Group or limit the Groups ability to extract or sell coal, which could have a material adverse effect on the Groups business, results of operations, financial condition and prospects. The Group depends on third parties for transportation of its products across significant distances; expenditures on transportation could increase and delays in delivery of the Groups products could harm its reputation The Group depends on third parties for transportation of its products to customers. Transportation costs represent a significant proportion of the Groups overall cost structure. As the Group started exporting coal concentrate to Asian markets in 2009 and then further increased its export volumes from 486 thousand tonnes in 2009 to 876 thousand tonnes in 2010, its transportation costs increased in 2009 (to US$23.7 million) and then further increased to US$48.3 million in 2010. Exports of coal concentrate to Asian markets were stopped after the accident at the Raspadskaya mine in May 2010, which resulted in a significant decrease in transportation costs in the second half of 2010 and in 2011. In 2012, however, the Groups management intends to return to the Asian markets and increase export volumes more generally going forward and, accordingly, transportation costs may again rapidly increase in the future. Increases in transportation costs, if the Group is unable to fully pass such cost increases to its customers, may adversely affect the Groups ability to compete successfully both in the domestic and international markets. Most of the Groups products are shipped to customers by rail or, in case of sales of the Groups coal concentrate to customers in Asian markets, by rail and sea, with transhipment in ports in the Russian Far East. While the Group currently does not have contractual relations with OAO Russian Railways (Russian Railways) or other Russian railway transportation companies and its product shipment needs are addressed by OOO Transit Plus, which operates under an agency agreement with the Company, the

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Groups transportation costs are significantly affected by Russian railway tariffs. These tariffs are currently regulated by the government and consist of two components: infrastructure costs and carriage costs. According to current government policy, annual tariff increases should be in line with inflation. There can be no assurance, however, that this policy will continue. Moreover, the Russian government is considering plans to increase competition in the railway sector through the privatisation of Russian Railways and/or certain of its subsidiaries, such as OAO Freight Two, a cargo arm of Russian Railways (OAO Freight One was privatised in 2011). If the privatisation of Russian Railways or any of its principal subsidiaries, or other factors were to result in increased railway transportation costs, this could have a material adverse effect on the Groups business, results of operations, financial condition and prospects. In addition, there has been insufficient investment in the Russian rolling stock over the past years, which caused its quality to deteriorate and sometimes resulted in shortages of available rolling stock. The Raspadskaya coal concentrate preparation plant occasionally faced problems with availability of rolling stock for coal concentrate transportation. For instance, in part due to shortages of available rolling stock, 567 working hours at the coal concentrate preparation plant were lost from August to October 2010 because the coal concentrate storage facility was full. The failure of Russian Railways, its principal subsidiaries or any other major Russian transportation company to upgrade their rolling stock within the next few years could result in a shortage of available adequate rolling stock and, as a result, in a disruption in transportation of the Groups products, which could have a material adverse effect on the Groups business, results of operations, financial condition and prospects. Delays in transporting the Groups products to its customers, particularly in Asia, could result in reputational damage to the Group as its Asian customers are accustomed to, and expect, just in time supply, making timeliness in deliveries an important factor in sales. As the Group is relying on Russian Railways, its subsidiaries, other private railway transportation companies, Russian port operators in the Far East and shipping companies for delivery of its products to its customers in Asia, the risk of delays in delivery and thus reputational damage to the Group exists and delays in product deliveries by such third parties could have a material adverse effect on the Groups business, results of operations, financial condition and prospects. In addition, a strike or an industrial action involving Russian Railways or other railway companies used by the Group could result in a disruption in transportation of the Groups products, including delays, and in increased railway transportation costs for the Group. The Groups management believes that competition in the Russian and the global coking coal industries is increasing and the Groups business and prospects could be adversely affected if the Group is not able to compete effectively Competition in the coking coal industry is based on many factors, including price, production capacity, coal quality and characteristics, transportation infrastructure and costs and brand recognition. Increased demand for coking coal and several increases in its prices beginning in the middle of 2000s attracted new investors to the coking coal industry, spurred the development of new mines and resulted in additional extraction capacity throughout the industry, all of which led to an increasingly competitive environment. The Group competes in the Russian domestic market with other domestic coal mining companies and in Ukraine with Ukrainian and Russian coal mining companies. In Asian markets, the Group competes with local producers, as well as with coal mining companies from Australia, the USA, Canada and Mongolia. Some competitors may have competitive advantages in terms of geographical location and transport routes and/or may have greater financial, marketing, distribution and other resources than the Group, as well as more well-known brand names in the domestic or international markets. In respect of financial resources, the Groups business requires it to be able to raise capital quickly to fund its operations and to obtain financing for investment at a reasonable cost. The Groups competitors, some of which are much larger entities, may have access to more sources of capital than the Group and may be able to obtain financing at better rates than the Group. Their access to capital at more favourable terms may enable them to implement operational and investment projects and could give them a competitive advantage over the Group. Therefore, there can be no assurance that the Group will continue to compete effectively in the future and such failure to compete effectively for any of the reasons discussed above could have a material adverse effect on the Groups business, results of operations, financial condition and prospects.

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The Group does not carry all of the types of insurance coverage customary in other more developed countries for a business of the Groups size and nature, and the Group may be unable to obtain adequate insurance cover The Group does not carry all of the types of insurance coverage customary in certain other countries for a business of the Groups size and nature. This is principally due to the relative underdevelopment of the Russian insurance market. Currently, the Group carries insurance only for the equipment that is pledged under certain banking loans, and there can be no assurance that such insurance will be adequate to cover losses that the Group may incur if such equipment becomes damaged. The Group also only maintains mandatory third-party liability insurance coverage required under Russian law for Russian companies operating hazardous facilities, although such insurance may not be adequate to fully cover losses of such third parties. The Group does not carry business interruption insurance. Due to limited coverage under the insurance policies of the Group that were in effect at the time of the accident at the Raspadskaya mine in May 2010, the Group was not able to recoup any of its losses resulting from this accident from insurance companies. If another major event, such as a large fire or explosion were to affect the Groups mines or its coal concentrate preparation plant in the future, the Group could experience substantial property loss, significant disruptions in its extraction and/or production capacity or development activities, for which the Group may not be adequately compensated. Depending on the severity of the property damage, the Group may also not be able to rebuild damaged property in a timely manner or at all. The insurance market in Russia remains relatively underdeveloped, and many forms of insurance protection available in more economically developed countries are not yet available in Russia on comparable terms to Western Europe or the United States or at all, including coverage for business interruption. For example, insurance in respect of any environmental liabilities which the Group may incur is currently unlikely to be available on commercially reasonable terms. Therefore, the Group may find it difficult or impossible to obtain adequate insurance cover at rates which are commercially viable or at all. Increasing labour costs could have an adverse effect on the Groups operations Staff costs (including capitalised cost and including payroll taxes) in 2009, 2010 and 2011 amounted to US$99.4 million, US$137.8 million and US$182.5 million, respectively. Such costs accounted for 20.0 per cent., 19.5 and 25.1 per cent. of the Groups revenue in 2009, 2010 and 2011, respectively. With the exception of 2009, when the impact of the global financial and economic crisis reduced average real salaries in Russia, real salaries in Russia have been steadily increasing over the last several years due to inflation and the overall improvement in the state of the Russian economy and the standard of living in Russia. The rise in staff costs (including capitalised costs but excluding payroll taxes) per Group employee from US$10,725 in 2009 to US$13,981 in 2010 and US$16,431 in 2011 was, in part, the result of increased competition for experienced miners and other qualified personnel among coal mining companies in the Kemerovo region. The Groups management believes that it was necessary to increase employees salaries in line with inflation in order to maintain the requisite number of skilled personnel needed to operate the Groups business. If labour costs continue to significantly increase in the future, this could have a material adverse effect the Groups business, results of operation, financial condition and prospects. The Groups business may be affected by shortages of skilled labour and labour disputes Competition for skilled labour is intense in the Russian mining industry. The demand for skilled engineers, technicians, mining and construction workers and operators of specialised equipment continues to increase, reflecting the significant demand from other industries and public infrastructure projects. Further increases in demand for skilled labour are likely to lead to increases in labour costs, which could adversely affect the Groups operations. A significant proportion of the Groups employees are members of trade unions. Large union representation subjects the Groups businesses to the threat of interruptions through strikes, lock-outs or delays in renegotiations of labour contracts. In addition, the Group may be adversely affected by labour strikes or other disruptions due to labour disputes at companies acting as contractors for the Group. There can be no assurance that such industrial actions will not occur in the future. Furthermore, the Group may not be able to renew its existing collective bargaining agreements with the Groups employees on favourable terms, or at all. Failure to renew the Groups collective bargaining agreements, significant work slowdowns, stoppages or other labour-related developments could have a material adverse effect on the Groups business, results of operations, financial condition and prospects.

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Stricter environmental laws and regulations or stricter enforcement of existing environmental laws and regulations in Russia may have a material adverse effect on the Groups business, results of operations, financial condition and prospects The Groups operations and properties are subject to laws, regulations and other legal requirements relating to protection of the environment and health and safety, including those governing the discharge of substances into air and water, the management and disposal of hazardous substances and waste, the clean-up of contaminated sites and protection of flora and fauna. Any failure by the Group to comply with existing or future environmental requirements could result in fines, assessments or other liabilities (including, without limitation, withdrawal or non-renewal of existing licences) or costs that could have a material adverse effect on the Groups business, results of operations, financial condition and prospects. The Groups mines and coal concentrate preparation plant are currently subject to statutory limits on air emissions and the discharge of liquids and other substances. Russian authorities may permit, in accordance with the relevant Russian laws and regulations, a particular facility to exceed these statutory limits, provided that the Group develops a plan for the reduction of the emissions or discharges and pays a fee based on the amount of contaminants released in excess of the limits. Fees are assessed on a sliding scale: the lowest fees are imposed for pollution within the statutory limits, intermediate fees are imposed for pollution within individually approved limits and the highest fees are imposed for pollution exceeding such limits. At present, the Groups waste water treatment facilities are unable to reduce the amount of polluting substances in waste water to required standards. In particular, the Group does not comply with standards for suspended solids, oil products, chlorides and phenol in the discharge of treated water. As a result, higher rate payments are incurred for over-the-limit discharges of polluting substances. It is within the discretion of the Russian authorities to allow pollution in excess of statutory limits, and any request for such increase in permitted limits may be denied. Any significant increases in the fees or determination that the limits may not be exceeded could have a material adverse effect on the Groups business, results of operations, financial condition and prospects. Moreover, the payment of fees for exceeding these limits does not relieve the Group of its responsibility to implement environmental protection measures and undertake restoration and clean-up activities. In addition, in the course or as a result of an environmental or regulatory investigation, the relevant authorities may issue an order to shut down part or all of the production at a mine or plant that is in violation of environmental limits, which could have a material adverse effect on the Groups business, results of operations, financial condition and prospects. Some of the Groups mines and production facilities generate large amounts of waste materials. The Group incurs substantial costs in managing and disposing of such waste materials. The Groups properties, however, generally have not been subject to comprehensive environmental audits to fully assess whether contamination is present. Any future findings of contamination could require removal and reclamation action and result in other liabilities that could have a material adverse effect on the Groups business, results of operations, financial condition and prospects. The Groups management believes that there is currently an increasing awareness in Russia of damage caused to the environment. More stringent environmental standards may be introduced, or the existing environmental laws and regulations may be more vigorously enforced. Furthermore, the implementation of the Kyoto Protocol to the United Nations Framework Convention on Climate Change from February 2005 or other regulation of greenhouse gas emissions would entail additional capital expenditures or modifications in operating practices. The extent of the impact on the Group would depend on, among other factors, the base level against which permissible levels of emissions are to be measured and the allocation of quotas for such emissions, which is currently uncertain. The Groups operations could be adversely affected if it fails to comply with applicable health and safety laws, regulations or rules or instructions of the relevant health and safety authorities Violations of health and safety laws, regulations or rules or failures to comply with the instructions of the relevant health and safety authorities could lead, among other things, to more frequent workplacerelated accidents or a court order or an order from the relevant regulatory authorities to shut down part of or all of the coal extraction operations at the Groups mines or production of coal concentrate at its Raspadskaya coal concentrate preparation plant that are in violation of such laws, regulations, rules or instructions and/or the imposition of costly compliance procedures. Accidents resulting in deaths of the Groups employees could also result in a shutdown of at least a part of the coal extraction operations at the Groups mines or production of coal concentrate at its Raspadskaya coal concentrate preparation plant. Such shutdowns could have a material adverse effect on the Groups business, results of operations, financial condition or prospects.

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In March 2012, the Ministry of Economic Development of the Russian Federation proposed amendments to the Russian Administrative Offences Code introducing turnover-based penalties (in the amount of 0.01 to 0.03 per cent. of a companys annual turnover) for gross violations of safety laws posing immediate threat to peoples life or health. If the proposed amendments become effective, gross violations by the Group of safety laws (including accidents) may result in turnover-based penalties imposed on the Group, which could have a material adverse effect on the Groups business, results of operations, financial condition or prospects. In addition, regulators conduct frequent inspections of Raspadskaya mine in light of the 2010 accident. The approval from Glavgosexpertiza and Rostekhnadzor is needed for each of the remaining stages of the Raspadskaya mine reconstruction process, which could further delay the Raspadskaya mines return to pre-accident coal extraction capacity. Furthermore, occasional partial closures of certain sections of the Groups mines by the regulators disrupt the mines operations. Since 2010, there have been at least 20 court orders either suspending mining operations in various sections of the Groups mines, particularly the Raspadskaya mine, for periods ranging from four to ninety days or suspending operations of one of the Companys subsidiaries. For more information on these suspensions, see BusinessHeath, Safety and Environmental Protection. The disruptions caused by these suspensions could have a material adverse effect on the Groups business, results of operations, financial condition or prospects. Moreover, due to changes in rules on industrial safety, certain new safety requirements (e.g. installation of air-gas control systems) affecting the Group cannot be satisfied on time as the required new equipment is not yet designed or installed. When the required new equipment is installed in the Groups mines, the Group may face liability (fines and suspension of activities for up to 90 days) in respect of any breaches of new industrial safety. Currently, various components of the system of gas (methane) and coal dust control at the Raspadskaya mine do not correspond to technical requirements prescribed by law, which exposes the group to potential liability for such non-compliance. Estimates of the Groups reserves and resources are subject to uncertainties The estimates contained in this Prospectus concerning the Groups coal reserves and resources are subject to considerable uncertainties. These estimates are generally based on site visits by representatives of IMC to the Groups mining operations in January 2012, their review of statistical data, their discussions with the Groups management on current status and future plans of the Group and projected rates of coal extraction in the future. In particular, preparation of the estimates involves the analysis of the geological conditions and nature of the deposits, the review of historical and current methods of exploration and sampling, the assessment of the suitability and efficiency of the current and planned mining methods, the assessment of the suitability of the existing surface and underground infrastructure and the status and operating availability of the equipment and infrastructure facilities. Due to the high number of factors affecting the accuracy of reserve estimates, the estimates contained in this Prospectus concerning the Groups coal reserves and resources may not be accurate. In addition, actual extraction results may differ significantly from these estimates. Furthermore, it may take many years from the exploration phase before extraction of coal becomes possible. During that time, the economic feasibility of exploiting a discovery may change as a result of changes in the market price of a particular grade of coal. The Groups ability to develop these reserves and resources is also subject to the Groups ability to maintain and renew the licences relating to those reserves and resources. To the extent that the actual reserves and resources are less than the estimated reserves and resources, or cannot be extracted cost effectively or at all, the Group may incur a significant write-down of such assets and the Groups supply of coking coal may become disrupted and/or decrease and the Groups coal extraction costs may increase significantly, which could have a material adverse effect on the Groups business, results of operations, financial condition and prospects. The Group has a material weakness in internal control systems The Group does not have a comprehensive accounting system for IFRS reporting purposes and all accounting, transformation and consolidation entries are processed manually in spreadsheets by the IFRS reporting team, including accounting for property, plant and equipment, which comprise the majority of the Groups assets. Such manual processing increases the risk of errors. In addition, a manual conversion process would generally not form part of a comprehensive system of internal control and, therefore, the likelihood that material misstatements in the Groups financial statements will be prevented or detected and corrected on a timely basis has not been reduced to an acceptable level.

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Unless the Group improves its internal controls and the quality of its financial reporting, and designs an appropriate system of internal controls over the IFRS financial statements closing process, specifically addressing all significant accounts, processes and assertions, formally documenting the Groups reporting policies and creating appropriate checklists and documentation templates, there may continue to be a higher than normal risk that reporting to management and the board of directors of the Group and/or public press releases may contain material errors. The Group heavily depends on its senior management and other key personnel The Groups future operating results depend, in large part, upon the continued contributions of its key senior managers and technical personnel and the Groups ability to train staff and attract employees with relevant expertise. The current general director (CEO) of ZAO Raspadskaya Coal Company (Raspadskaya Coal Company), the Groups management company, Gennady I. Kozovoy, assumed this position in April 2003, but previously served as the Companys general director from December 1993 through June 2003. The chairman of the Companys board of directors, Alexander S. Vagin, has served in such capacity since December 1993 and assumed the role of first deputy general director of Raspadskaya Coal Company in March 2004. Mr. Kozovoy and Mr. Vagin have extensive experience in the coal mining industry and have successfully transformed the Group into one of the largest coal mining companies in Russia. Due to Mr. Kozovoys and Mr. Vagins experience in the coal mining industry, the Group could be adversely affected if Mr. Kozovoy or Mr. Vagin ceased to actively participate in the management of the Groups business or left the Group entirely. In addition to the importance of Mr. Kozovoy and Mr. Vagin to the Groups continued growth and success, the ability to maintain its competitive position and to implement its business strategy is dependent as well on the Groups senior management and the ability to attract and retain skilled labour. If the Groups competitors offer, for instance, better compensation or working conditions, the Group could potentially lose some of its key personnel. If the Group cannot attract, train, retain and motivate qualified personnel, it may be unable to successfully manage its growth or otherwise compete effectively in the Russian coal industry, which could have a material adverse effect on the Groups business, results of operations, financial condition and prospects. The Group is, and is expected to continue to be, controlled by the Controlling Shareholders (as defined below), and their interests or interests of the shareholders of Evraz could conflict with the Groups interests, interests of other Controlling Shareholders and/or the interests of the Noteholders As of the date of this Prospectus, 80 per cent. of the Companys total outstanding share capital is controlled by Corber Enterprises Limited (Corber Enterprises). After the completion of the buyback in the second quarter of 2012, all purchased shares will become treasury shares (non-voting) and, therefore, relevant interest of Corber Enterprises will increase up to approximately 82 per cent. of all voting shares. Corber Enterprises is owned by Mastercroft Mining Limited (Mastercroft), a wholly-owned subsidiary of Evraz Group S.A. (Evraz), and Adroliv Investments Limited (Adroliv), ultimately owned by Mr. Kozovoy and Mr. Vagin (the Management Shareholders and, together with Evraz, the Controlling Shareholders), on a parity (50 per cent./50 per cent.) basis. The Groups management believes that the involvement of the Controlling Shareholders in the operations of the Group has been, and will continue to be, important in the implementation of the Groups strategy. However, there can be no assurance that the Controlling Shareholders will remain the Groups shareholders in the future. The Groups business and results of operations could be adversely affected if any of the Controlling Shareholders ceases to participate in the Groups operations. As a result of the Controlling Shareholders interests, the Controlling Shareholders will have the power to control the outcome of most matters to be decided by vote at a shareholders meeting and, as long as they hold the majority of the Groups shares, will control the election of the majority of the board of directors. Moreover, Adroliv and Mastercroft entered into an amended and restated shareholders agreement, dated 28 April 2006 (the Shareholders Agreement), which sets out certain provisions in respect of the management of the Group. See Management and Corporate GovernanceShareholders Agreement for further information. The Controlling Shareholders will also be able to control or significantly influence the outcome of any vote on any proposed amendment to the Companys charter, merger proposal or any proposed substantial sale of assets or other major corporate transactions. Thus, the interests of the Controlling Shareholders could conflict with those of the Noteholders.

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In addition, the interests of some of the Controlling Shareholders may conflict with the interests of other Controlling Shareholders. While to date, the Controlling Shareholders have had a consensus approach in respect of the Groups business and the Groups future development, there can be no assurance that, in the future, the Controlling Shareholders will not have differing strategies in pursuing the Groups development or any other conflicts of interests in respect of the Groups business. Any such conflicts or deterioration in the relationship among the Controlling Shareholders could have a material adverse effect on the Groups business, financial condition, results of operations and prospects. The Controlling Shareholders have considered in the past the possibility of disposing of their interest in the Company, and discussions with potential buyers in respect of such potential disposal have taken place. Although, as of the date of this Prospectus, no agreement on such disposal has been reached and no offer for such interest by an interested party has been received, there can be no assurance that a disposal of this interest (in whole or in part) may not take place in the future. Such a disposal could have an adverse effect on the Companys stock value and future growth prospects. Furthermore, Evraz currently owns other Russian coking coal production companies, including a 100 per cent. equity interest in one of the Groups main competitors, Yuzhkuzbassugol. To date, the partnership between Evraz and the Management Shareholders has been successful. However, if Evrazs investment focus shifts in favour of Yuzhkuzbassugol or other coking coal companies in the longer-term perspective, the Group may be deprived of the important benefits and resources that it derives from Evrazs current investment policy. Moreover, a shift in Evrazs focus in favour of Yuzhkuzbassugol may hinder the Groups activities and operations and may prevent the Groups further expansion. In addition, Evraz is one of the Groups largest customers, which accounted for 27.9 per cent., 27.2 per cent. and 20.8 per cent. of the Groups total revenue in 2011, 2010 and 2009, respectively. Therefore, it is possible that if Evraz ceases to be the Groups shareholder or if its relationship with the Management Shareholders deteriorates, volumes of coal concentrate and raw coal purchased by Evraz from the Group may decrease, which could have a material adverse effect on the Groups business, results of operations, financial condition and prospects. The Group must make significant capital expenditures in order to increase its coal extraction and coal concentrate production levels and improve overall efficiency The Groups business plan requires substantial capital expenditures for the foreseeable future for the purposes of, among other things, reconstructing the Raspadskaya mine after the May 2010 accident and expanding the Groups coking coal extraction capacity. Although the Groups policy is to finance its capital expenditures from its operating cash flows, the Group may, on occasion, look to secure debt or equity financing to fund its capital expenditure projects. There is no guarantee, however, that the Group will be able to generate adequate cash flow from current operations or that external funding will be available at the level the Group requires, on a timely basis, on commercially acceptable terms or at all during the periods when the Group requires such external funding for any reconstruction or development project. In particular, the global financial and economic crisis had adversely impacted the ability of industrial companies to obtain loans from banks or borrow in domestic or international capital markets and had increased the cost of such borrowings. Although the global economic conditions have improved since the crisis, any future deterioration of the global macroeconomic conditions could again lead to a lack of availability of, and accessibility to, external funding in the domestic and international capital markets. If the Group is unable to raise the necessary financing, it may have to revise its planned capital expenditures. Such possible reduction could adversely affect the Groups ability to expand its business and meet its future coal extraction and coal concentrate production targets and, if the reductions are severe enough, they could adversely affect the Groups ability to maintain coal extraction and coal concentrate production at even current levels, all of which could have a material adverse effect on the Groups business, results of operations, financial condition and prospects. Furthermore, in the second quarter of 2012, the Company expects to complete the buyback of up to 78,079,980 of its shares (or up to approximately ten per cent. of its shares issued and outstanding) at a price of 150 roubles per share. The share buyback programme will reduce the amount of cash available to the Group for alternative uses, including capital expenditures. In addition, capital expenditure programmes are also subject to a variety of potential problems and uncertainties, including incompletion, cost overruns and defects in design or construction, which may require additional investments, as well as changes in economic conditions, which may affect the economic viability of such capital expenditures. Furthermore, while the Companys subsidiary OOO Olzherasskoye

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Shaft-Sinking Unit (OShPU) is responsible for completing the Groups shaft sinking projects and other underground construction work at the Groups mines, the Group nevertheless relies to a significant degree on third-party contractors for other construction projects. If such third-party contractors cease their operations for any reason, the Group could incur higher costs and expenses and experience construction delays. There can be no assurance that the Group will successfully implement its capital expenditure programmes, either on time or on budget. If any or all major projects that constitute the Groups current capital expenditure programme are not implemented according to schedule or at all, any growth projections based on the assumption that new development projects for the Groups mines and other new construction or development projects are completed will not materialise and the efficiency gains from modernising the existing mines and production facilities will not be achieved, which would have a material adverse effect on the Groups business, results of operations, financial condition and prospects. A significant reduction in purchases by the Groups largest customers could adversely affect the Groups revenue The Groups three largest customers, Evraz (one of its Controlling Shareholders), OAO Koks (Koks) and Magnitogorsk Iron & Steel Works (MMK) accounted for 74.4 per cent. of the Groups total revenue in 2011. No assurance can be given that negotiations to extend existing coal concentrate or raw coal supply contracts or enter into new contracts with those and other principal customers will be successful. Moreover, these customers may choose not to purchase coal concentrate or raw coal from the Group in the future. If one or more of the Groups largest customers were to significantly reduce their purchases of coal concentrate from the Group, or if the Group were unable to sell coal concentrate to them on terms as favourable to it as currently set forth in the Groups outstanding coal concentrate or coal supply contracts, the Groups total revenue and profitability could be adversely affected. Weather conditions in the areas where the Groups mines and production facilities and the Groups key customers are located may disrupt operations Some of the regions in which the Groups mines and production facilities and its customers are located are subject to severe weather conditions such as extremely low temperatures and heavy snow and ice in winter months. Severe weather conditions may disrupt or halt the Groups operations or sales of the Groups products during certain times of the year. For example, the results of operations in the first quarter of 2010 were adversely affected by severe winter weather conditions, resulting in an 18.5 per cent. decrease in the Groups volume of domestic sales of coal concentrate and raw coal as compared to the fourth quarter of 2009. Harsh winter conditions can also disrupt deliveries of necessary raw materials or the export of the Groups products through sea ports, which could lead to significant increases in transportation costs as well as to delays in the Groups delivery of its products to customers. If severe weather conditions adversely affect the Groups coal extraction or coal concentrate production or if the Groups inability to deliver its products in a timely or anticipated manner significantly increases its transportation costs or harms the Groups reputation, this could have a material adverse effect on the Groups business, results of operations, financial condition and prospects. Insufficient or negative net assets of some companies in the Group could lead to their forced liquidation In accordance with Russian legislation, in the event that a Russian joint stock companys net assets at the end of its second or any subsequent financial year (its third or any subsequent financial year in case of a limited liability company), as stated in its annual balance sheet prepared under Russian Accounting Standards (RAS), fall below its share capital, the company must decrease its share capital to such level. In addition, if a Russian joint stock companys net assets at the end of its second or any subsequent financial year (its third or any subsequent financial year in case of a limited liability company), as stated in the annual balance sheet prepared under RAS, fall below the minimum share capital required by law, the company must voluntarily liquidate. If the company fails to comply with either of the requirements stated above within a reasonable period, the companys creditors may accelerate their claims or demand early performance of the companys obligations to them and demand payment of damages, and governmental authorities may seek the involuntary liquidation of the company. Fluctuation in the exchange rate of the rouble against the U.S. dollar could adversely affect the Groups operations The Groups products are typically priced in roubles for domestic sales and in U.S. dollars for export sales and the Groups direct costs, including labour, raw materials and transportation costs, are largely incurred in roubles, while other costs, such as interest expense, are incurred principally in U.S. dollars and, to a much smaller extent, in roubles and other foreign currencies such as euro. Therefore, of all foreign

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currency exchange rates, the exchange rate of the rouble against the U.S. dollar is particularly important for the Groups results of operations. The rouble appreciated in real terms against the U.S. dollar by 8.8 per cent. in 2011 and 9.7 per cent. in 2010 and depreciated in real terms against the U.S. dollar by 12.2 per cent. in 2009 according to the data from the CBR. The Group does not hedge its foreign currency exchange rate exposure. Depreciation of the rouble against the U.S. dollar tends to decrease the Groups revenue because stable rouble prices for the Groups products sold in Russia translate into lower revenue in U.S. dollars. Depreciation of the rouble against the U.S. dollar also tends to decrease the Groups costs because stable costs denominated in roubles translate into lower costs in U.S. dollars. The appreciation of the rouble against the U.S. dollar has the opposite effect on the Groups revenue and costs. At the same time, the depreciation of the rouble against the U.S. dollar results in losses from translation of roubledenominated monetary assets and liabilities into U.S. dollars at the end of each year. The appreciation of the rouble, in turn, has the opposite effect. The overall impact of the fluctuation of the rouble to U.S. dollar exchange rate depends on the proportion of the Groups export sales in its total sales and on the outstanding amount of the Groups U.S. dollar-denominated borrowings, as well as on the magnitude of the appreciation or depreciation of the rouble against the U.S. dollar within any particular year. Accordingly, fluctuations of the rouble in real terms against the U.S. dollar could, in certain circumstances, have a material adverse effect on the Groups business, results of operations, financial condition and prospects. The Group has engaged in the past and may engage in the future in transactions with related and other parties that may present conflicts of interest In the past, the Group has engaged in transactions with related parties such as its Controlling Shareholders and their affiliates. The Groups management expects that the Group will continue to enter into related party transactions in the future, including sales of the Groups products to Evraz. While the Groups management currently expects that related party transactions will be conducted on an arms length basis, as such transactions are being conducted currently and have been in the past, conflicts of interest may nevertheless arise between the Group and its related parties, which could have a material adverse effect on the Groups business, results of operations, financial condition and prospects. The Group is involved in arbitration proceedings with the FAS and an adverse outcome of such arbitration proceedings could result in a finding that the Group violated Russian law on protection of competition and a significant fine for the Group On 25 March 2011, the FAS issued a decision stating that Raspadskiy Ugol, a wholly-owned subsidiary of the Company which enters into all of the Groups coal concentrate and raw coal supply contracts, supplied foreign customers with coal concentrate at prices (recalculated from a FOB basis to a FCA basis) which were significantly lower than prices (calculated on a FCA basis) for the same products supplied to Russian customers. According to the FAS, Raspadskiy Ugol had violated section 10 (paragraph 6, part 1) of the Federal Law No. 135-FZ On Protection of Competition dated 26 July 2006 (the Law on Protection of Competition). Raspadskiy Ugol challenged this decision of the FAS in the State Arbitrazh Court of Moscow and won the case in such court on 18 November 2011. The Ninth Appelate State Arbitrazh Court reviewed the decision reached by the Moscow State Arbitrazh Court in favor of Raspadskiy Ugol and affirmed the decision of the Moscow State Arbitrazh Court on 5 March 2012. There is one additional appelate level arbitrazh court to which the FAS can appeal and after that the decision can also be considered by the Supreme Arbitrazh Court of the Russian Federation. On 10 November 2011, the FAS issued a ruling on the fine for Raspadskiy Ugol in connection with its violation of section 10 (paragraph 6, part 1) of the Law on Protection of Competition. The amount of the fine was set at 90,493,978 roubles. Raspadskiy Ugol is challenging this ruling in the State Arbitrazh Court of Moscow. Therefore, an adverse outcome of arbitration proceedings with the FAS could not only result in a finding that the Group violated Russian law on protection of competition but also in a significant fine being imposed on the Group.

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RISKS RELATED TO RUSSIA Emerging markets such as the Russian Federation are subject to greater risks than more developed markets, and the global financial and economic downturn could have a particularly significant adverse effect on Russia as an emerging market and thus on the Groups business, financial condition, results of operations and prospects Prospective investors should exercise particular care in evaluating the risks involved and must decide for themselves whether, in light of those risks, their investment is appropriate. Generally, investment in emerging markets is suitable only for sophisticated investors who are familiar with and fully appreciate the significance of the risks involved in investing in emerging markets. Investors should be aware that emerging markets such as Russia are subject to greater risk than more developed markets, including in some cases significant economic, political and social, and legal and legislative risks. Investors should also note that emerging economies are subject to rapid change and that the information set forth herein may become outdated relatively quickly. Moreover, during the global economic downturn, companies operating in emerging markets can face particularly severe liquidity constraints as investors move their money to more stable and developed markets. Thus, even if the Russian economy remains relatively stable, financial turmoil in other emerging market countries could have an adverse effect on the Russian economy. The Russian markets have been highly volatile during the global economic downturn beginning in 2008. Such volatility has caused market regulators to temporarily suspend trading on the MICEX and RTS stock exchanges multiple times and the MICEX and RTS stock exchanges have experienced significant overall declines from the beginning of the global economic downturn in 2008. As has happened in the past, financial problems or an increase in the perceived risks associated with investing in emerging economies could dampen foreign investment in the Russian Federation and adversely affect the Russian economy. Companies that operate in emerging or developing markets can face severe liquidity constraints if foreign funding sources are withdrawn. Additionally, the availability of credit to entities operating within the emerging markets is significantly influenced by levels of investor confidence in such markets as a whole and so any factor that impacts investor confidence in one market (for example, a decrease in credit ratings or state or central bank intervention) could affect the cost and availability of funding for entities in other markets. Financial turmoil in another emerging or developing market could have a material adverse effect on the Groups business, financial position, results of operations and prospects. The European sovereign debt crisis of 2011 and 2012 so far has had limited impact on the Russian economy since it has not led to significant declines in the prices of Russias key exports (which are mainly natural resource commodities, including oil and gas), as well as due to Russias relatively healthy public finances including a low debt to GDP ratio, small budget deficit, and a high level of international reserves. However, should the ongoing crisis lead to a significant worsening of the global macroeconomic situation and/or impact commodity prices and global trade flows, Russias overall economic and financial position in the short and medium term could also be negatively affected, which in turn could have a material adverse effect on the Groups business, financial position, results of operations and prospects. Political or regulatory developments could create an uncertain operating environment, hindering the Groups long-term planning ability, and could have a material adverse effect on the Groups business, financial condition, results of operations and prospects With any investment in an emerging market country, there exists the risk of adverse political or regulatory developments, including, but not limited to, nationalisation, appropriation without fair compensation, terrorism, war or currency restrictions, which could have a material adverse effect on the Groups business, financial condition, results of operations and prospects. Although the political situation in Russia has stabilised since 2000, any possible future political instability could result in a worsening overall economic situation, including capital flight and a slowdown of investment and business activity. Future shifts in government policy and regulation in Russia are less predictable than in many Western democracies and could also disrupt or reverse political, economic, regulatory and other reforms. Any significant change in or suspension of the Russian governments programme of reform or major policy shifts could lead to a deterioration in Russias investment climate that might limit the ability of the Group to obtain financing in the international capital markets or otherwise have a material adverse effect on the Groups business, financial condition, results of operations and future prospects.

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The reversal of reform policies or selective or arbitrary governmental actions could have an adverse effect on the Groups business, financial condition, results of operations and prospects as well as investments in Russia more generally Major policy shifts in Russia could hinder or reverse political, economic and regulatory reforms. The authorities may adopt policies that could adversely affect private sector companies generally or in any particular sector, or in which there is significant foreign ownership. For example, although the political and economic situation in Russia has generally become more stable and conducive to investment since 2000, any significant struggle over the direction of future reforms or the reversal of the reform process could lead to a deterioration in Russias investment climate that could adversely and materially impact the Companys business, financial condition, results of operations and prospects. Moreover, regulatory authorities in Russia have a high degree of discretion and at times appear to exercise their discretion selectively or arbitrarily, without hearing or prior notice. Such arbitrary governmental actions have reportedly included denial or withdrawal of licences, sudden and unexpected tax audits, criminal prosecutions and civil actions. In this environment, the Groups competitors may receive preferential treatment from the Russian government and governmental authorities, which could give the Groups competitors a competitive advantage. Unlawful, selective or arbitrary government action, if directed at the Groups operations in Russia, could have a material adverse effect on the Groups business, financial condition, results of operations and prospects. Furthermore, the Russian government has the power in certain circumstances to interfere with the performance of, nullify or terminate contracts and, through its tax, environmental and prosecutorial arms, it has engaged in selective investigations and prosecutions of particular companies or persons. In the international sphere, Russia has adopted a more assertive approach to the pursuit of its interests. If Russia were to adopt restrictive economic measures against countries that are important to the Groups business, or if trade between Russia and such countries were otherwise to be interrupted for political reasons, the Groups business, financial condition, results of operations and future prospects could be materially and adversely affected. Fluctuations in the global economy, as well as the general economic instability of Russia could materially and adversely affect the Groups business, financial condition, results of operations and prospects Russia is a developing economy, with the greater part of its GDP supported by strong export activity, which makes it particularly vulnerable to global market downturns and economic slowdowns. Over the last two decades, the Russian economy has experienced at various times: significant declines in its GDP; high levels of inflation; an unstable currency and instability in the local currency market; the impoverishment of a large portion of the Russian population; pervasive capital flight; and significant increases in unemployment and underemployment. The Russian economy has been subject to abrupt downturns in the past. At the onset of the global financial and economic crisis, in the latter part of 2008 and the early part of 2009, commodity prices on the world market plunged, with the price of crude oil, for example, decreasing by more than 70% between July 2008 and the beginning of 2009, to subsequently recover primarily in the first half of 2009. In December 2008, the international credit rating agency Standard & Poors Financial Services (S&P) downgraded Russias foreign currency sovereign credit rating from BBB+/A-2 to BBB/A-3, in large part due to the impact of the financial and economic downturn that began in the second half of 2008. Moodys Investors Service Inc. (Moodys), another international credit rating agency, changed its outlook to stable from positive on Russias key ratings in December 2008. In February 2009, Fitch Ratings Ltd (Fitch) downgraded its long-term sovereign rating for the Russian Federation from BBB+/ A-2 to BBB/A-3, with negative outlook, stating that the lowering of the ratings on Russia reflects risks associated with the sharp reversal in external portfolio and other investment flows, which has increased the cost and difficulty of meeting the countrys external financing needs. In January 2010, Fitch, however, changed the outlook from negative to stable. In October 2011, Moodys adjusted its ratings outlook for the

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Russian banking system from stable to negative. The change reflected concerns that market volatility was weakening Russias operating environment, which could potentially negatively affect Russian banks through a system-wide liquidity contraction, slower credit growth and pressured asset quality over the next 12 to 18 months. In January 2012, Fitch lowered its credit rating of the Russian Federation from positive to stable based on perceived increased political uncertainty and global economic outlook. In March 2012, Fitch announced it may further lower the Russian sovereign credit rating if the Russian government does not restrict its budget policy and fails to limit expenditure. Such rating actions, however, did not prevent Russia from successfully placing US$7 billion in Eurobonds in the end of March 2012. Russia is also a major producer and exporter of metal products and its economy is vulnerable to fluctuations in world commodity prices and the imposition of tariffs and/or anti-dumping measures by the United States, the European Union or by other principal export markets. A sustained decline in the prices of crude oil, natural gas and other commodities could have a substantial adverse impact on the Russian economy, which, in turn, could have a material adverse effect on the Groups business, financial condition, results of operations and prospects. Furthermore, the global financial and economic crisis led to high volatility in debt and equity markets, reductions in foreign investment and sharp decreases in GDP around the world. Although 2010 and 2011 have substantially recovered, as Russias GDP increased by 4.3 per cent. in both years, a recurrent deterioration of the world economy could result in decreases or fluctuations in world commodity prices, which would have a materially adverse impact on the Russian economy, which in turn could have a material adverse effect on the Groups operations, affecting its business, results of operations and prospects. Crime and corruption could create a difficult business climate in Russia Despite the campaign pursued by the Russian government and the State Duma against organised crime and corruption, the results of such efforts are currently uncertain and will only become evident in the future, accordingly, illegal activities could have a material adverse effect on the business climate in Russia generally and the Groups operating results and financial position in particular. The infrastructure in Russia is inadequate, which could increase costs or result in losses for businesses and disrupt normal business activities Russias physical infrastructure largely dates back to the Soviet period and in certain respects has not been adequately funded and maintained. Breakdowns and failures of any part of Russias physical infrastructure may disrupt the Groups normal business activity. For example, in August 2009, a major accident at the Sayano-Shushenskaya hydroelectric power plant resulted in a significant power shortage in Khakassia and neighbouring regions, causing several local production plants to halt operations, as well as environmental damage to the surrounding areas. In addition to having restructured and substantially privatised the electricity sector, the Russian government is also seeking to reorganise its railway and telephone systems, as well as the public utilities sector. The economic downturn in 2009 delayed these reorganisation plans. Moreover, the restructuring of the electricity sector has not yet yielded the anticipated capital investment that is needed to repair, maintain and improve the existing power generating facilities and supply routes. Further deterioration of Russias physical infrastructure may harm the national economy, disrupt the transportation of goods and supplies, add costs to doing business in Russia and interrupt business operations, any or all of which could have a material adverse effect on the Groups business, results of operations, financial condition and prospects. Restrictive currency regulations may adversely affect the Groups business, results of operations, financial condition and prospects Notwithstanding significant recent liberalisation of the Russian currency control regime and the abolishment of certain restrictions from 1 January 2007, the Federal Law No. 173-FZ On Currency Regulation and Currency Control of 10 December 2003, as amended (the Currency Law), and current regulations still contain a number of limitations. Moreover, certain currency controls restrictions were not repealed from 1 January 2007 and these include a general prohibition on foreign currency operations between Russian companies (except for the operations specifically listed in the Currency Law and the operations between the authorised banks specifically listed in the CBR regulations) and the requirement to repatriate, subject to certain exemptions, export-related earnings to Russia. Restrictions on the Groups

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ability to conduct some of these transactions could increase its costs, prevent the Group from continuing necessary businesses, or from successfully implementing its business strategy, which could have a material adverse effect on the Groups business, results of operations, financial condition and prospects. In addition, because of the limited development of the foreign currency market in Russia, the Group may experience difficulty converting roubles into other currencies. Any delay or other difficulty in converting roubles into a foreign currency to make a payment or any practical difficulty in the transfer of foreign currency could limit the Groups ability to meet its payment and debt obligations, which could result in the acceleration of debt obligations and cross defaults. Furthermore, there is only a limited number of available rouble denominated instruments in which the Group may invest its excess cash. Any balances maintained in roubles will give rise to losses if the rouble depreciates against major foreign currencies. Inflation could increase the Groups costs The Russian economy has in the past been characterised by high rates of inflation, including an annual inflation rate of 84.4 per cent. in 1998. According to the Russian government estimates, the annual inflation rate in Russia was 8.3 per cent. in both 2009 and 2010 and 6.1 per cent. in 2011. Certain of the Groups costs, including payroll costs, rent and utilities are sensitive to inflation in Russia. Due to competitive pressures, regulatory constraints or other factors, the Group may not be able to increase its prices sufficiently to preserve its margins. As a result, high rates of inflation could increase the Groups costs, and there can be no assurance that the Group will be able to maintain or increase its margins in such circumstances. Thus, inflation may have a material adverse effect on the Groups business, financial condition, results of operations and prospects. Incomplete, unreliable or inaccurate official data and statistics could create uncertainty The official data published by Russian federal, regional and local government agencies are substantially less complete or reliable than those of some of the more economically developed countries of North America and Europe. Official statistics may also be produced on different bases than those used in more economically developed countries. Additionally, the Group relies on, and refers to, information and statistics from various third-party sources and its own internal estimates. For example, substantially all the information contained in this Prospectus concerning the Groups competitors has been derived from publicly available information, including press releases. The Group believes that these sources and estimates are reliable, but the Group has not independently verified them. However, to the extent that such sources or estimates are based on official data released by Russian federal, regional and local government agencies, they will be subject to the same uncertainty. Any discussion of matters relating to Russia in this Prospectus is, therefore, subject to uncertainty due to concerns about the completeness or reliability of available official and public information. Legal risks and uncertainties related to Russia Weakness relating to the Russian legal system and legislation create an uncertain environment for investment and business activity Russia is still developing an adequate legal framework required for the proper functioning of a market economy, and several fundamental Russian laws have only recently become effective. The recent nature of much of Russian legislation and the rapid evolution of the Russian legal system may place the enforceability and underlying constitutionality of laws in doubt and result in ambiguities, inconsistencies and anomalies in their application. In addition, Russian legislation sometimes leaves substantial gaps in the regulatory infrastructure. Among the potential risks of the current legal system are: inconsistencies among certain laws of the Russian Federation, and governmental, ministerial and local orders, decisions, resolutions and other acts; limited judicial and administrative guidance on interpreting legislation; gaps in the regulatory structure due to the absence of or delay in implementing regulations; the relative inexperience of judges and courts in interpreting new principles of Russian law, particularly in relation to business and commercial law; bankruptcy procedures that are still under development;

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 a lack of judicial independence from political, social and commercial forces; problematic and time-consuming enforcement of both Russian and non-Russian judicial orders and international arbitration awards; and a high degree of discretion on the part of governmental authorities, leaving significant opportunities for arbitrary and capricious government action. All of these factors make judicial decisions in Russia difficult to predict and make effective redress uncertain. These uncertainties also extend to mineral rights. While legislation has been enacted to protect private property against expropriation and nationalisation, due to the lack of experience of the courts in Russia in enforcing these provisions and due to political factors, these protections may not be enforced in the event of an attempted expropriation or nationalisation. Expropriation or nationalisation of any of the Groups entities, their assets in full or in part, potentially without adequate compensation, could have a material adverse effect on the Groups business, results of operations, financial condition and prospects. Furthermore, court judgments are not always enforced or followed by law enforcement agencies. All of these weaknesses could affect the Groups ability to enforce its rights or to defend itself against claims by others, which could have a material adverse effect on the Groups business, results of operations, financial condition and prospects. Lack of developed corporate and securities laws and regulations in Russia may limit the Groups ability to attract future investment The regulation and supervision of the securities markets, financial intermediaries and issuers are considerably less developed in Russia than in more developed countries. Securities laws, including those relating to corporate governance, disclosure and reporting requirements and insider trading, have only recently been adopted in Russia, whereas laws relating to anti-fraud safeguards and fiduciary duties are rudimentary. In addition, the Russian securities markets are regulated by several different authorities, which include: the FSFM; the Ministry of Finance; the FAS; the CBR; and various professional self-regulatory organisations. Rules and regulations of these various authorities are not always consistent with each other and may be contradictory. In addition, Russian corporate and securities rules and regulations can change rapidly, which may have a material adverse effect on the Companys ability to conduct securities-related transactions. While some important areas are subject to virtually no oversight, the regulatory requirements imposed on Russian issuers in other areas result in delays in conducting securities offerings and in accessing the capital markets. It is often unclear whether or how regulations, decisions and letters issued by the various regulatory authorities apply to the Group. As a result, the Group may be subject to fines or other enforcement measures. Russian legal entities may be forced into liquidation on the basis of formal non-compliance with certain requirements of Russian law Certain provisions of Russian law may allow a court to order liquidation of a Russian legal entity on the basis of its formal non-compliance with certain requirements during formation, reorganisation or operation. There have been cases in the past in which formal deficiencies in the establishment process of a Russian legal entity or non-compliance with provisions of Russian law have been used by Russian courts as a basis for liquidation of a legal entity. Some Russian courts, in deciding whether to order the liquidation of a company, have looked beyond the fact that the company failed to comply fully with all applicable legal requirements and have taken into account other factors, such as the financial standing of the company and its ability to meet its tax obligations, as well as the economic and social consequences of its liquidation. This judicial approach is supported by a decision of the Constitutional Court of the Russian Federation that held that even repeated violations of law may not serve as a basis for an involuntary liquidation of a

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company, and instead consideration should be given to whether the liquidation would be an adequate sanction for such violations. For example, under Russian corporate law, negative net assets calculated on the basis of Russian Accounting Standards (RAS) as of the end of the second or any subsequent year of a joint stock companys operation (its third or any subsequent financial year in case of a limited liability company) can serve as a basis for a court to order the liquidation of the company upon a claim by governmental authorities. Many Russian companies have negative net assets due to very low historical asset values reflected on their RAS balance sheets; however, their solvency, i.e., their ability to pay debts as they come due, is not otherwise adversely affected by such negative net assets. Shareholder liability under Russian legislation could cause the Company to become liable for the obligations of its subsidiaries Russian law generally provides that shareholders in a Russian joint stock company or a limited liability company are not liable for the obligations of such joint stock company or, as the case may be, limited liability company and bear only the risk of loss of their investment. This may not be the case, however, when one person or entity is capable of determining decisions made by another entity. The person or entity capable of determining such decisions is called an effective parent. The entity whose decisions are capable of being so determined is called an effective subsidiary. Under Russian law, the effective parent bears joint and several responsibility for transactions performed by the effective subsidiary in carrying out these decisions if: this decision-making capability is provided for in the charter of the effective subsidiary or in a contract between such persons or entities; and the effective parent directs the actions of the effective subsidiary. Moreover, an effective parent is secondarily liable for an effective subsidiarys debts if an effective subsidiary becomes insolvent (bankrupt) as a result of the action or inaction of the effective parent, regardless of how the effective parents capability to determine decisions of the effective subsidiary arises. For example, this liability could arise through ownership of voting securities or by contract. Furthermore, other shareholders of the effective subsidiary may claim compensation for the effective subsidiarys losses from the effective parent, which caused the effective subsidiary to take action or fail to take action knowing that such action or inaction would result in losses. Accordingly, in its position as an effective parent, the Company could be liable in some cases for the debts of its effective subsidiaries. The Companys interested party transactions may be challenged under Russian law Subject to certain exceptions, according to the Joint Stock Companies Law, any transaction which the Company enters into with an interested party, as defined under Russian law, must be approved by a majority vote of disinterested directors, disinterested independent directors or disinterested shareholders before it is entered into. In some cases, its minority shareholders may not approve transactions that are interested party transactions requiring shareholders approval or there may be an insufficient number of disinterested shareholders to constitute a quorum required for approval of interested party transactions. Any transaction that is not so approved may be challenged in court by a range of parties, including the Company, any of its shareholders or, if insolvency proceedings are commenced against the Company, by a court-appointed arbitration manager acting on behalf of its creditors. If a challenge is upheld, the relevant transaction can be overturned. Due to the technical requirements of Russian law, entities within the Group may be deemed interested parties in respect of certain transactions among themselves. In addition, the concept of interested parties is defined with reference to the concepts of affiliated persons and group of persons under Russian law, which are subject to many different interpretations. Moreover, the provisions of Russian law defining which transactions must be approved as interested party transactions are also subject to differing interpretations. The Group cannot be certain that any interested party transactions will not be free from challenge. Since 2009, the Company has entered into a significant number of interested party transactions with its subsidiaries within the Group and with other companies (see the Related Party Transactions section of the Prospectus). There were at least 115, 143 and 138 transactions with the Companys subsidiaries and 35, 38 and 43 transactions with companies that may be considered interested parties under Russian law in 2009, 2010 and 2011, respectively.

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According to JSC Law, an interested party transaction is subject to approval by the board of directors. An interested party transaction with the value at or more than two per cent. of the balance sheet assets of a Russian company is subject to approval by the general shareholders meeting. All mentioned transactions were not approved by either the Board of Directors or the General Shareholders Meeting of the Company. According to item 1 Article 84 of the JSC Law, an interested party transaction which has not been properly approved might be challenged in a Russian court by a Russian company or its shareholders. However, a Russian court will likely dismiss such claims of a Russian company or its shareholders, if the transaction did not cause and will not cause in the future any damages to the Russian company bringing the action or its shareholders. In the event disinterested minority shareholders do not approve interested party transactions or successfully challenge them, the Group could be limited in its operational flexibility in connection with such transactions. Shareholder rights provisions under Russian law may impose additional costs on the Company Russian law provides that shareholders that voted against or did not participate in voting on certain matters have the right to sell their shares to a company at market value, as determined in accordance with Russian law. The decisions that trigger this right to sell shares include: reorganisation of the company; approval by shareholders of certain major transactions; and amendment of the companys charter that restricts shareholders rights. The companys obligation to purchase the shares in these instances is limited to ten per cent. of its net assets calculated under RAS at the time the matter at issue is voted upon. If the company is required to purchase shares in these circumstances, this could have a material adverse effect on its business, results of operations, financial condition and prospects. Weaknesses in the Russian tax system could adversely affect the business of the Company The Company is subject to a wide range of Russian taxes and other compulsory payments and levies imposed at federal, regional and local levels, which include, among others, profits tax, value added tax (VAT), import duties, compulsory insurance payments, property tax and other taxes. Russian laws and regulations relating to these taxes such as the Russian Tax Code have been in force for a short period of time in comparison to tax laws and regulations in more developed market economies. Historically, the system of tax collection in Russia has been relatively ineffective, resulting in continual changes in the tax legislation and in the interpretation and application of existing laws and regulations by various authorities. Furthermore, the tax environment in Russia has been complicated by the fact that the representatives of various authorities have often interpreted tax legislation inconsistently. Although Russias tax climate and the quality of Russian tax legislation have generally improved with the introduction of the Russian Tax Code, there can be no assurance that the Russian Tax Code will not be changed in future in a manner that will be adverse to the stability and predictability of the Russian tax system. The possibility exists that the Russian Government may impose arbitrary or onerous taxes, levies, fines and penalties in future, which could have a material adverse effect on the Companys business, financial condition, results of operations and prospects. Since Russian federal, regional and local tax laws and regulations have been subject to frequent changes and some of the sections of the Russian Tax Code relating to the above-mentioned taxes are comparatively new, the interpretation and application of these laws and regulations is often unclear, unstable or non-existent or may be subject to change at a short notice. Differing interpretations of tax laws and regulations may exist both among and within governmental bodies at federal, regional and local levels, increasing the number of existing uncertainties, tax risks and leading to the inconsistent enforcement of these laws and regulations in practice. In some instances, the Russian tax authorities have applied new interpretations of tax laws and regulations retroactively. The Russian tax system is therefore impeded by the fact that at times it still relies heavily on inconsistent judgments of local tax officials and fails to address many of the existing problems. Furthermore, taxpayers, the Russian Ministry of Finance and the Russian tax authorities often interpret tax laws differently. Private clarifications to specific taxpayers queries with respect to particular

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situations issued by the Ministry of Finance may not be binding on the Russian tax authorities and there can be no assurance therefore that the representatives of the local Russian tax authorities will not take positions contrary to those set out in the private responses issued by the Ministry of Finance. During the past several years the Russian tax authorities have shown a tendency to take more assertive positions in their interpretation of tax legislation, which has led to an increased number of material tax charges claimed by them as a result of tax audits of Russian companies operating in various industries. In practice, taxpayers often have to resort to court proceedings to defend their positions against the tax authorities. In the absence of a binding precedent, court rulings on tax or other related matters taken by different courts relating to the same or similar circumstances may also be inconsistent or contradictory. It is therefore possible that the Companys transactions and activities that have not been challenged in the past may be challenged in future. Tax declarations together with related documentation are subject to review and investigation by a number of Russian authorities, which are empowered by Russian law to impose fines and penalties on taxpayers. Generally, tax declarations together with the related documentation remain open and subject to the audit by the Russian tax authorities in the course of on-site tax audits for a period of three calendar years immediately preceding the year in which the decision to conduct a tax review has been taken. The fact that a particular year has been reviewed by the tax authorities does not prevent any tax declarations and other documentation relating to that year from further review and investigation by the Russian tax authorities during the three year limitation period. In particular, a tax authority superior to that which has carried out the initial tax audit may re-audit the same period. Therefore, previous tax reviews may not preclude subsequent tax claims relating to the reviewed period. The Russian Tax Code provides for a possible extension of the three-year statute of limitations for liabilities for tax offences if the taxpayer is deemed to obstruct the performance of the tax audit and this has become an insurmountable obstacle for the tax audit. As the terms obstructed and insurmountable obstacles are not specifically defined in Russian tax law or any other branches of Russian legislation, the Russian tax authorities may attempt to interpret these terms broadly, effectively linking any difficulty experienced by them in the course of their tax audits with the obstruction committed by the taxpayer and use that as a basis to seek tax adjustments and penalties beyond the three-year limitation period. Therefore, the statute of limitations is not entirely effective with respect to liability for tax offences, i.e., tax penalties, in Russia. Such extended tax audit, if it is concluded that the Company had significant tax underpayments relating to previous tax periods, may have a material adverse effect on the Companys business, financial condition, results of operations and prospects. On 12 October 2006, the Plenum of the Supreme Arbitration Court of the Russian Federation issued a ruling which introduced a concept of the unjustified tax benefit defined mainly by the reference to specific examples of such tax benefits (e.g., tax benefits obtained by taxpayers as a result of arrangements that lack reasonable business purpose) which may lead to the disallowance of their application. Based on the available court practice it is apparent that the Russian tax authorities actively seek to apply this concept when challenging tax positions taken by taxpayers. Although the intention of this ruling was to combat the abuse of tax law, in practice, based on court cases relating to this ruling that have been brought to courts and are available to date, it can be concluded that the tax authorities have started applying the unjustified tax benefit concept in a broader sense than may have been initially intended by the Supreme Arbitration Court of the Russian Federation. Importantly, the Company is aware of cases where this concept has been applied by the Russian tax authorities in order to disallow benefits granted by double tax treaties. To date, however, in many cases where this concept has been applied, the courts have ruled in favour of taxpayers, but there can be no assurance that the courts will follow these precedents in future. These factors create tax risks in the Russian Federation that are more significant than tax risks typically found in countries with more developed taxation, legislative and judicial systems and raise the risk of the imposition of additional taxes, levies, fines and penalties on the Company. The introduction of new taxes, levies or the introduction of amendments to current taxation rules may have a substantial impact on the overall amount of tax liabilities of the Company. Further, these risks and uncertainties complicate the Companys tax planning and related business decisions, potentially exposing the Company to significant fines, penalties and potentially severe enforcement measures, and could have a material adverse effect on the Companys business, results of operations, financial condition and prospects.

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Transfer pricing rules may have a negative effect on the operations of the Company The Russian transfer pricing legislation as currently in effect allows the tax authorities to make transfer pricing adjustments and impose additional tax liabilities in respect of all controlled transactions (except for those conducted at state regulated prices and tariffs). The list of controlled transactions includes transactions with related parties and certain types of cross-border and some other transactions. Special transfer pricing rules apply to transactions with securities and derivatives. Transfer pricing rules may have a potential adverse impact on the Companys tax costs arising from the pricing mechanism applied in controlled transactions, in particular, transactions with related parties located in and outside of Russia. Due to uncertainties in the interpretation of recently introduced transfer pricing legislation, there is a risk that the tax authorities may impose significant additional tax liabilities on the Company as a result of transfer pricing adjustments. They may have a material adverse effect on the business, financial condition, results of operations and prospects of the Company. The new rules related to consolidated groups of taxpayers may not apply to the Group Starting 1 January 2012 new rules relating to consolidated groups of taxpayers (the Tax Group) became effective. Tax accounting, tax calculation and tax payment responsibilities for the entire Tax Group may be imposed on one participant designated to act as the responsible participant. Should it fail to discharge its liabilities, all members of the Tax Group will be liable jointly and severally for any tax underpayment, the corresponding penalties and late payment interest. The Tax Groups profits tax base should be based on income and expenses of its participants. The consolidated profits cannot be reduced by tax losses accumulated by the participants of the Tax Group prior to its establishment. Moreover, intragroup transactions are to be included in the consolidated tax base and are arguably not subject to transfer pricing control. There is however a number of other criteria which should be met in order to allow the creation of the Tax Group, In fact, under the current rules only quite a few companies in Russia would be entitled to benefit from the Tax Group-related regime. Inability of the Company to consolidate its financial results for tax purposes with other entities of the Group may result in the significant increase of its tax burden and have a material adverse effect on the Companys business, financial condition, results of operations and prospects. Interest payments on the Loan may be subject to Russian withholding tax In general, interest payable on borrowed funds by a Russian legal entity to a non-resident legal entity or organisation having no registered presence and/or no permanent establishment in Russia is subject to Russian withholding tax at the rate of 20 per cent which could be reduced or eliminated pursuant to the terms of an applicable double tax treaty, subject to timely compliance with the treaty clearance formalities by the interest income recipients. In particular, the Agreement between the Government of Ireland and the Government of the Russian Federation for the Avoidance of Double Taxation with Respect to Taxes on Income dated 29 April 1994 (the Russia-Ireland double tax treaty) generally allows to exempt interest amounts from Russian withholding tax provided that certain requirements are satisfied by their recipients in a timely manner. The application of tax benefits under the Russia-Ireland double tax treaty could be affected by the change in the interpretation by the Russian tax authorities of the concept of factual/beneficial owner of income. Specifically, on 30 December 2011 the Russian Ministry of Finance issued letter No. 03-08-13/1 (the Letter) addressed to the Federal Tax Service (FTS), in which the Russian Ministry of Finance asserted that in the context of a eurobonds structure a foreign issuer of eurobonds cannot benefit from the provisions of the Russia-Ireland double tax treaty in respect of interest paid by the Russian borrower. That is because in the view of the Russian Ministry of Finance such foreign issuers of eurobonds may not be considered as the beneficial owners of interest income. Conversely the Letter says that holders of the notes could apply provisions of the respective tax treaty concluded between Russia and the country of residency of each holder of the notes. Although the Letter refers to a deal structure which is not exactly the same as the transaction structure described in this Prospectus, the Company cannot exclude the risk that conclusions made in the Letter may potentially be applied by the Russian tax authorities to payments of interest under the Loan.

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Further, there are a few instances in which the Russian tax authorities challenged transactions similar to the one described in this Prospectus arguing that the noteholders rather than the issuers should be regarded as the actual recipients of interest income. These cases have not been brought to court yet. If these cases are brought before a Russian court and such court upholds the position of the Russian tax authorities, it may become an obstacle for the Company to continue making interest payment on the Loan without deduction of the amount of withholding on the basis of the Russia-Ireland double tax treaty. It should be noted that on 27 January 2012 the Russian Ministry of Finance published a press-release where it confirmed that the opinion expressed in the Letter reflects its current position and announced plans to introduce legislative changes which will remove the obligation to act as a tax agent with respect to interest payable by the Russian borrowers subject to certain conditions. On 20 February 2012 the Russian Ministry of Finance published its proposed amendments to the Tax Code on its website. According to the proposal of the Russian Ministry of Finance in respect of eurobond structures, Russian borrowers will be fully released from the obligation to withhold Russian income tax, i.e. will be fully released from the obligation to act as tax agents, with respect to interest payable to foreign entities provided that (1) these entities have issued bonds or other debt obligations admitted to trading on one of the recognised foreign exchanges and the proceeds from the issue were used to fund the loan and rights to such bonds or other debt obligations have been registered in recognised depository/clearing organisations (e.g. Euroclear, Clearstream, DTC), (2) there is a double tax treaty between Russia and the jurisdiction of tax residence of the issuer which can be confirmed by a tax residency certificate. The respective provisions are supposed to apply retrospectively to income paid under the qualifying structures since 2007. The lists of recognised foreign exchanges or depository/clearing organisations have not been drafted yet. Importantly, proposed legislative changes do not provide exemption to foreign interest income recipients from Russian withholding tax, although currently there is no requirement in the Russian tax legislation for foreign income recipients to self-assess and pay the tax to the Russian tax authorities. The Russian Ministry of Finance acknowledged in its information letter published on its website that the release from obligation to act as a tax agent means in effect that withholding tax should not arise in connection with eurobonds, since there is neither a mechanism nor an obligation for a non-resident to calculate and pay independently such tax. There can be no assurance that such rules will not be introduced in future or that the tax authorities would not make attempts to collect the tax from foreign income recipients. The Russian Ministry of Finance has consulted with the Federal Tax Service and in the information letter assures that until the proposed legislative amendments enter into force, there are no plans to challenge Russian borrowers in connection with payments on eurobonds issued prior to or during 2012, in respect of which borrowers are expected to be released from obligations as a tax agent under the proposed legislative amendments. Although such declaration is made by the Russian Ministry of Finance, it is not legally binding. The abovementioned draft law is subject to further changes and is not under consideration in the State Duma as of the date of this Prospectus. It is expected that it will be submitted to the State Duma for consideration in the upcoming spring session. It is currently uncertain whether the current version of the draft law will be enacted, when it will be introduced, how it will be interpreted and applied by the tax authorities and/or courts in practice. Until this draft is adopted, this remains merely a declaration of intent by the Russian Ministry of Finance. Furthermore, in August 2011 the Russian Government also proposed in its Main Directions of Russian Tax Policy for 2012 and planned for 2013-2014 legislative changes concerning an anti-avoidance mechanism with respect to double tax treaty benefits in cases where ultimate beneficiaries of income do not reside in the relevant double tax treaty country. The introduction of such concept may result in the inability of foreign entities to claim benefits under double tax treaties through structures which historically were subject to double tax treaty protection in Russia, including set out in this Prospectus structure. Therefore, it is not currently possible to determine the extent to which the proposed changes to the Tax Code and/or change in the position of the Russian tax authorities could impact on the application of benefits envisaged by the Russia-Ireland double tax treaty relating to interest payments under the Loan by the Company. Accordingly, in the absence of clarity on the potential amendments to the tax legislation, there can be no assurance that such relief will be available in practice or will continue to be available throughout the term of the Loan.

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If interest payments under the Loan Agreement become subject to Russian withholding tax (as a result of which the Issuer will be required to reduce payments made by it under the Notes by the amount of such withholding tax), the Company will be obliged (subject to certain conditions) to increase the amounts payable by it under the Loan, or to pay to the Issuer such additional amounts under the Loan, as may be necessary to ensure that the net payments received by the Issuer and the Noteholders will be equal to the amounts they would have received in the absence of such withholding. It is currently unclear whether the provisions of the Loan Agreement obliging the Company to gross up interest payments under the Loan will be enforceable under Russian Law as currently in effect. If the Company is obliged to increase interest payments under the Loan or to make additional payments on the Loan as described above, it may (without premium or penalty), subject to certain conditions, prepay the Loan in full. In such case, all outstanding Notes will each be redeemable at par together with accrued and unpaid interest and additional amounts (if any) to the date of repayment. If interest amounts due under the Loan Agreement become payable to the Trustee pursuant to the security arrangements described herein, any benefit of the Russia-Ireland double tax treaty will cease. It is not expected that the Trustee will or will be able to claim a Russian withholding tax exemption or reduction under any applicable double tax treaty with Russia under such circumstances. In such cases, the Noteholders which are foreign persons not residing for tax purposes in Russia may seek the reduction or elimination of Russian withholding tax or Russian personal income tax as applicable, or a refund of withholding tax under applicable double tax treaties entered into between their countries of tax residence and the Russian Federation, where such treaties exist and to the extent they are applicable. There is no assurance however that the respective treaty relief will be available to the Noteholders in practice under these circumstances. No VAT will be payable in Russia in respect of interest and principal payments under the Loan. Disposal of the Notes by a non-resident Noteholder in the Russian Federation may be subject to Russian withholding tax or personal income tax, as applicable, which may adversely affect the value of the Notes If a non resident Noteholder that is a legal entity or organisation sells the Notes other than through its permanent establishment in Russia and receives sales or other disposal proceeds from a source within the Russian Federation, there is a risk that the portion of the proceeds representing accrued interest may be subject to Russian withholding tax at the rate of 20 per cent. (or such other tax rate as could be effective at the time of such sale or other disposal), even if the sale or other disposal results in a loss. While some Noteholders which are foreign legal entities or organisations might be eligible for an exemption from or a reduction of Russian withholding tax based on provisions of the applicable double tax treaties relating to interest income (subject to compliance with the treaty clearance formalities by these Noteholders), there can be no assurance that such double tax treaty relief will be available to them in practice, whilst obtaining a refund of Russian income tax withheld at source can be extremely difficult, if not impossible. The Russian Ministry of Finance opined on the matter relating to the application of the Russian withholding tax in case of the sale of eurobonds by the foreign legal entity in a number of its private clarifications to taxpayers. In its opinion expressed in these clarifications no Russian withholding tax should be due under such circumstances. It may not however be predicted with the absolute certainty whether the Russian entities remitting sales or disposal proceeds to the Noteholders which are foreign legal entities or organisations having no permanent establishment in Russia will be willing to follow this approach in practice. Where proceeds from the sale or other disposal of the Notes are received from a source within the Russian Federation by a Noteholder who is an individual not qualifying as a Russian tax resident, Russian personal income tax at the rate of 30 percent (or such other tax rate as could be effective at the time of such sale or other disposal) would apply to the gross amount of such proceeds decreased by any available duly documented cost deductions (including the acquisition cost of the Notes) provided that the documentation supporting cost deductions is supplied to the person obliged to calculate and withhold Russian personal income tax in a timely manner Furthermore, sales or other disposal proceeds attributable to accrued interest, if deemed to be received by such Noteholders from Russian sources, can be subject to Russian personal income tax at the rate of 30 percent (or such other tax rate as could be effective at the time of such sale or other disposal), even if the sale or other disposal results in a loss. Although technically Russian personal income tax due could be reduced or eliminated based on provisions of an applicable double tax treaty concluded between Russia and the country of tax residency of a particular Noteholder, subject to timely compliance by that Noteholder with the treaty clearance formalities, in practice non-

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Russian resident Noteholders who are individuals may not be able to obtain the advance treaty relief in relation to sales or disposal proceeds and/or accrued interest income, as may be relevant, received from a source within Russia, whilst obtaining a refund of Russian personal income tax withheld at source could be extremely difficult, if not impossible. Furthermore, even though currently the Russian Tax Code is typically interpreted such as only a Russian asset manager or broker, or another person (including a foreign company with a permanent establishment or a registered presence in Russia or an individual entrepreneur located in Russia) acting under an agency agreement, a commission agreement or a commercial mandate agreement carrying out operations for the benefit of a non-Russian individual is required to withhold Russian personal income tax from payments to a non-Russian individual associated with the sale or other disposal of securities, there is no guarantee that other Russian companies or foreign companies with a permanent establishment or another registered presence in Russia or an individual entrepreneur located in Russia would not seek to withhold Russian personal income tax from payments made in favour to the nonRussian tax resident Noteholders who are individuals under these circumstances. If Russian personal tax has not been withheld at source by the tax agent, Noteholders who are non-Russian individuals may be obliged to self-assess the tax and pay it to the Russian tax authorities individually. The imposition or possibility of imposition of Russian withholding tax or personal income tax as may be applicable could adversely affect the value of the Notes. See Tax Considerations. RISKS RELATED TO THE NOTES AND OFFERING The Company may be unable to repay the Loan at maturity or prepay the Loan upon the occurrence of certain events set forth in the Loan Agreement At the time of maturity, the Company may not have the funds to fulfil its obligations under the Loan Agreement and may not be able to arrange for additional financing. Furthermore, if the maturity date of the Loan occurs at a time when other arrangements prohibit the Company from repaying the Loan, the Company would try to obtain waivers of such prohibitions from the lenders under those arrangements, or the Company could attempt to refinance the borrowings that contain the restrictions. If the Company were unable to obtain the requisite waivers or refinance these borrowings, the Company would be unable to repay the Loan. In addition, as set forth in the Loan Agreement, the Issuer may require the Company to prepay the Loan in full if it becomes unlawful for the Issuer to: allow all or part of the Loan to remain outstanding under the Loan Agreement; allow the Notes to remain outstanding; maintain or give effect to any of its obligations in connection with the Loan Agreement; or charge, raise or to be paid interest at the rate applicable in relation to the Loan or the Notes. In case of any such prepayment, all outstanding Notes would be redeemable at the principal amount thereof together with accrued interest. The Company may not have sufficient cash available to make such prepayment at that time. If the Company fails to meet its payment obligations under the Loan Agreement in full, this will result in the Noteholders receiving less than the scheduled amount of principal, interest or other amounts, if any The Issuer has an obligation under the Terms and Conditions of the Notes and the Trust Deed to pay such amounts of principal, interest and additional amounts (if any) as are due in respect of the Notes. However, the Issuers obligation to pay is limited to the amount of principal, interest and additional amounts (if any) actually received and retained (net of tax) by or for the account of the Issuer from the Company pursuant to the Loan Agreement. Consequently, if the Company fails to meet its payment obligations under the Loan Agreement in full, this will result in the Noteholders receiving less than the scheduled amount of principal, interest or other amounts, if any. Noteholders have no direct recourse to the Company Except as otherwise expressly provided in the Terms and Conditions of the Notes and in the Trust Deed, no proprietary or other direct interest in the Issuers rights under or in respect of the Loan Agreement exists for the benefit of the Noteholders. Subject to the terms of the Trust Deed, no Noteholder will have any entitlement to enforce any provision of the Loan Agreement or have direct recourse to the

40

Company as borrower except through action by the Trustee pursuant to the rights granted to the Trustee in the Trust Deed. Under the Trust Deed and the Terms and Conditions of the Notes, the Trustee shall not be required to take proceedings to enforce payment under the Loan Agreement unless it has been indemnified or secured by the Noteholders to its satisfaction. See Terms and Conditions of the Notes. In addition, Noteholders should be aware that neither the Issuer nor the Trustee accepts any responsibility for the performance of obligations under the Loan Agreement by the Company. The market price of the Notes may be volatile The market price of the Notes could be subject to significant fluctuations in response to actual or anticipated variations in the Groups own, and the Groups competitors, operating results, adverse business developments, changes to the regulatory environment in which the Group operates, changes in financial estimates by securities analysts and the actual or expected sale of a large number of Notes, as well as other factors. In addition, in recent years, the global financial markets have experienced significant price and volume fluctuations which, if repeated, could adversely affect the market price of the Notes without regard to the Groups business, results of operations, financial condition or prospects. The Notes may be redeemed prior to maturity In the event that the Issuer would be obliged to increase the amounts payable in respect of any Notes due to any withholding or deduction for or on account of any present or future taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or on behalf of the Russian Federation or Ireland or any political subdivision thereof or any authority therein or thereof having power to tax. Raspadskaya would be required to increase amounts payable under the Loan Agreement. In such circumstances, Raspadskaya may prepay the Loan, in which case the Issuer would redeem all outstanding Notes in accordance with the Conditions. In addition, the Notes shall be redeemed in whole, but not in part, upon giving notice to the Noteholders at any time at their outstanding principal amount together with accrued interest to the date of redemption and any additional amounts in respect thereof, in the event that it becomes unlawful for the Issuer to fund the Loan or to allow it to remain outstanding under the Loan Agreement, or to allow the Notes to remain outstanding, all as more fully described in Clause 5 (Repayment and Prepayment) of the Loan Agreement. See Loan Agreement. As with the optional repayment feature of the Loan referred to above, it may not be possible to reinvest the redemption proceeds at an effective interest rate as high as the interest rate on the Notes and this may only be possible at a significantly lower rate. See also Condition 5 of the Terms and Conditions of the Notes. There is no existing market for the Notes There is no existing market for the Notes. Application has been made for the Notes to be admitted to trading on the Main Securities Market. However, there can be no assurance that an active trading market for the Notes will develop or be maintained. If an active trading market for the Notes does not develop or is not maintained, the market price and liquidity of the Notes may be adversely affected. The Issuer may issue additional Notes with identical terms that may have a negative impact on the market value of the original Notes The Issuer may from time to time, without the consent of the Noteholders of outstanding Notes, issue additional notes with identical terms. These additional Notes, even if they are treated for non-tax purposes as part of the same series as the original Notes, may be treated as a separate series for U.S. federal income tax purposes. If the additional Notes are issued with original issue discount, this may have a negative impact on the market value of the original Notes, if the additional Notes are not otherwise distinguishable from the original Notes. Modification, waivers and substitution The Trust Deed contains provisions for calling meetings of Noteholders to consider matters affecting their interests generally. These provisions permit defined majorities to bind all Noteholders including Noteholders which did not attend and vote at the relevant meeting and Noteholders which voted in a manner contrary to the majority.

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The Terms and Conditions of the Notes provide that the Trustee may, subject to the provisions of the Trust Deed, without the consent of Noteholders, agree to: (i) any modification of, or to the waiver or authorisation of any breach or proposed breach of, any of the provisions of the Notes, the Trust Deed or the Loan Agreement; or (ii) determine without the consent of the Noteholders that any event which would, or might otherwise give rise to a right of acceleration under the Loan Agreement or constitute a Relevant Event shall not be treated as such, all as more fully described in Condition 12 of the Terms and Conditions of the Notes. The Notes may not be a suitable investment for all investors Each potential investor in the Notes must determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should: have sufficient knowledge and experience to make a meaningful evaluation of the Notes, the merits and risks of investing in the Notes and the information contained in this Prospectus; have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the Notes and the impact such investment will have on its overall investment portfolio; have sufficient financial resources and liquidity to bear all of the risks of an investment in the Notes; understand thoroughly the terms of the Notes and be familiar with the behaviour of the relevant financial markets; and be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic, interest rate and other factors that may affect its investment and its ability to bear the applicable risks. Exchange rate risks and exchange controls The Issuer will pay principal and interest on the Notes in U.S. dollars. This presents certain risks relating to currency conversions if any investors financial activities are denominated principally in a currency or currency unit (the Investors Currency) other than the U.S. dollar. These include the risk that exchange rates may significantly change (including changes due to devaluation of the U.S. dollar or revaluation of the Investors Currency) and the risk that authorities with jurisdiction over the Investors Currency relative to the U.S. dollar would decrease: (i) the Investors Currency equivalent yield on the Notes; (ii) the Investors Currency equivalent value of the principal payable on the Notes; and (iii) the Investors Currency equivalent market value of the Notes. Foreign judgments and arbitral awards may not be enforceable against the Company or other members of the Group Judgments rendered by a court in any jurisdiction outside Russia are likely to be recognised by courts in Russia only if: (i) an international treaty providing for the recognition and enforcement of judgments in civil cases exists between Russia and the country where the judgment is rendered; and/or (ii) a federal law of Russia providing for the recognition and enforcement of foreign court judgments is adopted. No such federal law has been passed and no such treaty exists between the United Kingdom and Russia for the reciprocal enforcement of foreign court judgments. In the absence of an applicable treaty or convention providing for the recognition and enforcement of judgments in civil and commercial matters between the United Kingdom and the Russian Federation, a judgment of a court in England may be recognised and enforced in the Russian Federation only on the grounds of reciprocity. Although a number of Russian court decisions indicate this possibility, there has only been two instances in which a Russian court recognised and enforced an English court judgment on this basis. In each case, reciprocity must be established and, in the absence of a developed court practice, it is difficult to predict whether a Russian court will be inclined to recognise and enforce an English court judgment on the grounds of reciprocity in any particular instance. Also, the Loan Agreement is governed by English Law. The Lender and the Company have agreed that any dispute or difference arising from or in connection with the Loan Agreement shall be settled by arbitration in accordance with the Rules of the LCIA (formerly known as the London Court of International Arbitration) unless the Lender elects, by notice in writing to the Company, to have the dispute settled by proceedings brought in the courts of England. The Russian Federation is a party to the United Nations (New York) Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

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However, it may be difficult to enforce arbitral awards in the Russian Federation due to a number of factors, including the lack of experience of Russian courts in international commercial transactions, official and unofficial political resistance to enforcement of awards against Russian companies in favour of foreign investors, Russian courts inability to enforce such orders and corruption. Furthermore, any arbitral award pursuant to arbitration proceedings in accordance with the Rules of the LCIA and the application of English law to the Loan Agreement may be limited by the mandatory provisions of Russian laws relating to the exclusive jurisdiction of Russian courts and the application of Russian laws with respect to bankruptcy, winding -up or liquidation of Russian companies and credit organisations in particular. Russian bankruptcy law has been the object of limited court decisions and thus it is impossible to predict with certainty how claims by the Lender or the Trustee on behalf of the Noteholders against the Company would be resolved in the event of the Companys bankruptcy Russian bankruptcy law often differs from comparable laws in Western European countries and may be subject to varying interpretations. There is little precedent to predict how claims on behalf of the Noteholders against the Company would be resolved in case of its bankruptcy. In addition, under Russian law, the obligations under the Loan Agreement would be subordinated to, among others, the following obligations: costs related to bankruptcy litigation; in tort to physical persons life or health, as well as moral damages; claims relating to indebtedness in respect of mandatory payments to the budget and off-budget funds; claims under employment contracts and other social benefits and copyright claims; claims secured by a pledge of the Companys assets; and claims of all other creditors except for claims of subordinated creditors. In the event of the Companys insolvency, this subordination may substantially decrease the amounts available for repayment of the Loan, and as a result, the Notes. The Notes may only be transferred in accordance with the procedures of the depositaries in which the Notes are deposited Except in limited circumstances, the Notes will be issued only in global form, with interests therein held through the facilities of Euroclear, Clearstream, Luxembourg and/or DTC. Ownership of beneficial interests in the Notes is shown on, and the transfer of that ownership is effected only through, records maintained by Euroclear, Clearstream, Luxembourg and/or DTC or their nominees and the records of their participants. The laws of some jurisdictions may require that certain purchasers of securities take physical delivery of such securities in definitive form. These laws may impair the ability to transfer beneficial interests in the Notes. Because Euroclear, Clearstream, Luxembourg and/or DTC can only act on behalf of their participants, which, in turn, act on behalf of owners of beneficial interests held through such participants and certain banks, the ability of a person having a beneficial interest in a Note to pledge or transfer such interest to persons or entities that do not participate in the Euroclear, Clearstream, Luxembourg and/or DTC systems may be impaired. Credit ratings of the Russian Federation, the Notes and the Companys credit ratings could adversely affect the value of the Notes Outstanding eurobonds of the Russian Federation are rated Baa1 by Moodys, BBB by S&P and BBB by Fitch. Each of these rating agencies is established in the European Community and registered under the CRA Regulation. The Company has a long-term rating of B+ (outlook stable) from Fitch and B1 (negative outlook) from Moodys. The Notes are expected to be rated B1 by Moodys and B+ by Fitch. These credit ratings do not mean that the Notes are a suitable investment. A rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the assigning rating organisation. Similar ratings on different types of notes do not necessarily mean the same thing. The ratings do not address the likelihood that the principal on the Notes will be prepaid, paid on an expected final payment date or paid on any particular date before the legal final

43

maturity date of the Notes. The ratings do not address the marketability of the Notes or any market price. The significance of each rating should be analysed independently from any other rating. Any changes in the credit ratings of the Russian Federation, the Notes and in the Companys credit ratings could adversely affect the value of the Notes and the price that a subsequent purchaser will be willing to pay for the Notes. The Issuer is subject to risks, including the location of its centre of main interest, the appointment of examiners, claims of preferred creditors and floating charges Centre of main interest The Issuer, a company incorporated under the laws of Ireland, has its registered office in Ireland. As a result there is a rebuttable presumption that its centre of main interest (COMI) is in Ireland and consequently that any main insolvency proceedings applicable to it would be governed by Irish law. In the decision by the European Court of Justice (ECJ) in relation to Eurofood IFSC Limited, the ECJ restated the presumption in Council Regulation (EC) No. 1346/2000 of 29 May 2000 on Insolvency Proceedings, that the place of a companys registered office is presumed to be the companys COMI and stated that the presumption can only be rebutted if factors which are both objective and ascertainable by third parties enable it to be established that an actual situation exists which is different from that which locating it at the registered office is deemed to reflect. As the Issuer has its registered office in Ireland, has Irish directors, is registered for tax in Ireland and has an Irish corporate services provider, the Issuer does not believe that factors exist that would rebut this presumption, although this would ultimately be a matter for the relevant court to decide, based on the circumstances existing at the time when it was asked to make that decision. If the Issuers COMI is not located in Ireland, and is held to be in a different jurisdiction within the European Union, main insolvency proceedings may not be opened in Ireland. Examinership Examinership is a court procedure available under the Irish Companies (Amendment) Act 1990, as amended (the 1990 Act) to facilitate the survival of Irish companies in financial difficulties. The Issuer, the directors of the Issuer, a contingent, prospective or actual creditor of the Issuer, or shareholders of the Issuer holding, at the date of presentation of the petition, not less than one-tenth of the voting share capital of the Issuer are each entitled to petition the court for the appointment of an examiner. The examiner, once appointed, has the power to halt, prevent or rectify acts or omissions, by or on behalf of the company after his appointment and, in certain circumstances, negative pledges given by the company prior to his appointment will not be binding on the company. Furthermore, where proposals for a scheme of arrangement are to be formulated, the company may, subject to the approval of the court, affirm or repudiate any contract under which some element of performance other than the payment remains to be rendered both by the company and the other contracting party or parties. During the period of protection, the examiner will compile proposals for a compromise or scheme of arrangement to assist in the survival of the company or the whole or any part of its undertaking as a going concern. A scheme of arrangement may be approved by the Irish High Court when a minimum of one class of creditors, whose interests are impaired under the proposals, has voted in favour of the proposals and the Irish High Court is satisfied that such proposals are fair and equitable in relation to any class of members or creditors who have not accepted the proposals and whose interests would be impaired by implementation of the scheme of arrangement and the proposals are not unfairly prejudicial to any interested party. The fact that the Issuer is a special purpose entity and that all its liabilities are of a limited recourse nature means that it is unlikely that an examiner would be appointed to the Issuer. If however, for any reason, an examiner were appointed while any amounts due by the Issuer under the Notes were unpaid, the primary risks to the Noteholders would be as follows: the Trustee, acting on behalf of Noteholders, would not be able to enforce rights against the Issuer during the period of examinership; and a scheme of arrangement may be approved involving the writing down of the debt due by the Issuer to the Noteholders irrespective of the Noteholders views.

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Preferred Creditors If the Issuer becomes subject to an insolvency proceeding and the Issuer has obligations to creditors that are treated under Irish law as creditors that are senior relative to the Noteholders, the Noteholders may suffer losses as a result of their subordinated status during such insolvency proceedings. In particular: under the terms of the Trust Deed, payment of all sums under the Trust Deed and the Notes will be secured in favour of the Trustee for the benefit of itself and the other Noteholders by security over the Charged Property (as defined in the Trust Deed). Under Irish law, the claims of creditors holding fixed charges may rank behind other creditors (namely fees, costs and expenses of any examiner appointed and certain capital gains tax liabilities) and, in the case of fixed charges over book debts, may rank behind claims of the Irish Revenue Commissioners for PAYE and VAT; under Irish law, for a charge to be characterised as a fixed charge, the charge holder is required to exercise the requisite level of control over the assets purported to be charged and the proceeds of such assets including any bank account into which such proceeds are paid. There is a risk therefore that even a charge which purports to be taken as a fixed charge may take effect as a floating charge if a court deems that the requisite level of control was not exercised; and in an insolvency of the Issuer, the claims of certain other creditors (including the Irish Revenue Commissioners for certain unpaid taxes), as well as those of creditors mentioned above, will rank in priority to claims of unsecured creditors and claims of creditors holding floating charges.

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USE OF PROCEEDS The Issuer will use the proceeds of the issue of the Notes for the sole purpose of financing the Loan. The net proceeds from the Loan, after payment of fees, commissions and expenses, will be approximately US$394 million. The Company intends to use the net proceeds of the Loan to repay its outstanding 7.5 per cent. loan participation notes in the amount of US$300 million due in May 2012 and with any remaining net proceeds used for general corporate purposes.

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CAPITALISATION AND INDEBTEDNESS OF THE GROUP The following table shows the Groups cash and cash equivalents, short-term borrowings including current portion of long-term borrowings and capitalisation as of 31 December 2011, on a historical basis and as adjusted to give effect to the receipt of the US$150 million loan from Raiffeisenbank by the Company in the first quarter of 2012, the offering of the Notes, the receipt of the Loan by the Company and the use of the proceeds thereof as described in Use of Proceeds. This information should be read in conjunction with the Financial Statements contained elsewhere in this Prospectus.
As at 31 December 2011 Actual As adjusted(1) (in thousands of U.S. dollars)

Cash, cash equivalents and short-term bank deposits . . . . . . . . . . . . . . . . . Short-term borrowings and current portion of long-term borrowings . . . . . . Long-term borrowings . . . . . . . . . . . . . . . . . . . . . Equity: Issued capital . . . . . . . . . . . . . . . . . . . . . . . . . . Treasury shares . . . . . . . . . . . . . . . . . . . . . . . . . Additional paid-in capital . . . . . . . . . . . . . . . . . Reserve capital . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated profits . . . . . . . . . . . . . . . . . . . . . Unrealised gain on available-for-sale investments Translation difference . . . . . . . . . . . . . . . . . . . . Minority Interests . . . . . . . . . . . . . . . . . . . . . . . Total capitalisation
(1)
(2)

260,279 304,027 1,243 303 784,139 7 543,859 1,487 (272,382) 4,486 1,061,899 1,063,142

507,779 1,527 551,243 303 784,139 7 543,859 1,487 (272,382) 4,486 1,061,899 1,613,142

.................. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........................................

Adjusted to give effect to the US$150 million loan from Raiffeisenbank to the Company in the first quarter of 2012, the issuance of the Notes and the receipt of the Loan by the Company. For purposes of this table, the gross proceeds from the Loan have been applied to repay the 7.5 per cent. loan participation notes in the amount of US$303 million, including accrued interest, which were issued by the Issuer on 22 May 2007 and are due on 22 May 2012, and the remaining amount of net proceeds, together with the proceeds of the Raiffeisenbank loan, have been added to cash, cash equivalents and short-term bank deposits. Total long-term borrowings, net of current portion, and equity.

(2)

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION The following tables set forth, in full or in summary form, consolidated financial information and operational information relating to the Group. The selected consolidated financial information set forth below has been derived from and should be read in conjunction with the Financial Statements included elsewhere in this Prospectus. Certain operating information relating to the Group is also set forth below. Adjusted EBITDA, Adjusted EBITDA margin cash cost of production, cash cost per tonne of coal concentrate produced and net indebtedness (or net cash position) are non-IFRS measures and were calculated by the Group based on data derived from the Financial Statements. This information should be read in conjunction with the section entitled Managements Discussion and Analysis and the Financial Statements, including the notes to the Financial Statements, included elsewhere in this Prospectus. The following table represents the Groups income statement for the years presented.
Year ended 31 December 2011 2010 2009 (in thousands of U.S. dollars)

Revenue Sale of goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selling and distribution costs . . . . . . . . . . . . . . . . . . . General and administrative expenses . . . . . . . . . . . . . Social and social infrastructure maintenance expenses . Loss on disposal of property, plant and equipment . . . Foreign exchange gains/(losses) . . . . . . . . . . . . . . . . . Other operating income . . . . . . . . . . . . . . . . . . . . . . Other operating expenses . . . . . . . . . . . . . . . . . . . . . Operating profit . . . . . . . . . . Dividend income . . . . . . . . . Interest income . . . . . . . . . . Interest expense . . . . . . . . . . Gain from a bargain purchase .......... .......... .......... .......... of subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

707,970 18,131(1) 726,101 (358,805) 367,296 (4,543) (60,879) (9,117) (7,057) (10,754) 9,512 (95,926) 188,532 23 16,865 (28,132) 177,288 (41,571) 135,717

686,343 19,263(2) 705,606 (325,008) 380,598 (3,504) (52,026) (5,867) (44,100) 1,826 5,075 (92,653) 189,349 3 16,519 (26,500) 104,735 284,106 (39,788) 244,318

483,831 13,216(3) 497,047 (263,176) 233,871 (2,583) (40,600) (5,396) (1,179) (15,529) 1,553 (7,061) 163,076 12 12,322 (25,307) 150,103 (32,966) 117,137

Profit before income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Profit for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) (2) (3) Including US$9,520 thousand in revenue from sales of other goods. Including US$13,498 thousand in revenue from sales of other goods. Including US$8,477 thousand in revenue from sales of other goods.

48

The following table represents the Groups statement of financial position at 31 December 2011, 2010 and 2009.
At 31 December 2011 2010 2009 (in thousands of U.S. dollars)

Assets Non-current assets Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current assets Inventories . . . . . . . . . . . . . . . . Trade and other receivables . . . . Prepayments . . . . . . . . . . . . . . . Receivables from related parties Income tax receivable . . . . . . . . Other taxes recoverable . . . . . . Short-term bank deposits . . . . . Cash and cash equivalents . . . . .

1,461,779 49,206 5,258 1,516,243

1,529,894 22,553 5,718 1,558,165 77,199 47,329 12,749 32,621 7,806 15,866 158,384 164,628 516,582 2,074,747

1,409,708 2,108 35,958 1,447,774 44,274 73,970 17,800 73,385 3,406 11,136 149,953 28,277 402,201 1,849,975

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

84,046 60,033 4,614 39,785 2,763 10,361 80,179 180,100 461,881 1,978,124

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity and liabilities Equity attributable to equity holders of the parent Issued capital . . . . . . . . . . . . . . . . . . . . . . . . . . . Additional paid-in capital . . . . . . . . . . . . . . . . . . Reserve capital . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated profits . . . . . . . . . . . . . . . . . . . . . . Unrealised gain on available-for-sale investments . Translation difference . . . . . . . . . . . . . . . . . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

303 784,139 7 543,859 1,487 (272,382) 1,057,413 4,486 1,061,899

303 783,862 7 907,359 2,058 (194,515) 1,499,074 5,257 1,504,331 302,387 151,862 22,200 11,703 488,152 41,088 19 8,216 2,504 4,855 25,404 178 82,264 2,074,747

303 783,862 7 662,605 1,655 (179,485) 1,268,947 5,735 1,274,682 303,320 140,496 19,542 1,567 464,925 43,410 3,095 28,407 1,274 7,455 26,449 278 110,368 1,849,975

Non-controlling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-current liabilities Long-term loans . . . . . . . . . . . . . . Deferred income tax liabilities . . . . Post-employment benefits liabilities Site restoration provision . . . . . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

1,243 136,242 23,045 9,937 170,467

Current liabilities Trade and other payables . . . . . . . . Advances from customers . . . . . . . . Short-term loans and current portion Payables to related parties . . . . . . . . Income tax payable . . . . . . . . . . . . . Other taxes payable . . . . . . . . . . . . Share buyback liability . . . . . . . . . . Dividends payable . . . . . . . . . . . . . .

.. .. of .. .. .. .. ..

............ ............ long-term loans ............ ............ ............ ............ ............

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

45,863 49 304,027 2,262 4,324 25,337 363,771 125 745,758 1,978,124

Total equity and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

49

The following table represents the Groups cash flow statement for the years presented.
Year ended 31 December 2011 2010 2009 (in thousands of U.S. dollars)

Operating activities Profit for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments to reconcile net profit to net cash flows from operating activities: Depreciation, depletion and amortisation . . . . . . . . . . . . . . . . . . . . Deferred income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss on disposal of property, plant and equipment . . . . . . . . . . . . . Foreign exchange losses/(gains) . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reversal of the value of assets written off in prior periods . . . . . . . Gain from a bargain purchase of subsidiary . . . . . . . . . . . . . . . . . . Net employee benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change in bad debt allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . Changes in working capital: Inventories . . . . . . . . . . . . . . . . . . . . Trade and other receivables . . . . . . . Prepayments . . . . . . . . . . . . . . . . . . Receivables from / payables to related Trade and other payables . . . . . . . . . Advances from customers . . . . . . . . . Taxes payable, net of taxes receivable

..

135,717

244,318

117,137

. . . . . . . . . . .

. . . . . . . . . . .

124,952 110,563 (38,622) (31,636) 7,057 44,100 10,754 (1,826) (23) (3) (16,865) (16,519) 28,132 26,500 (3,969) (104,735) (1,260) (179) (95) (815) 245,778 269,768 (33,380) 29,292 4,886 42,872 8,055 (3,062) (10,526) 307,905

74,692 (995) 1,179 15,529 (12) (12,322) 25,307 551 623 221,689 9,706 (13,812) (9,462) (17,127) (4,362) 2,949 32,040 221,621

...... ...... ...... parties ...... ...... ......

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

(12,018) (16,696) 7,910 (9,875) 6,294 33 11,286 232,712

Net cash flows from operating activities . . . . . . . . . . . . . . . . . . . . . . . Investing activities Purchases of property, plant and equipment . Bank deposits, including interest . . . . . . . . . Purchase of subsidiary, net of cash acquired . Other investing activities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(144,437) (137,570) (153,163) 99,655 37,499 (57,066) (34,021) 631 5,346 626 (44,151) (128,746) (209,603) 812 (29,426) (545) (135,217) (164,376) (8,713) 15,472 164,628 180,100 4,929 (47,723) (98) (42,892) 84 136,351 28,277 164,628 35,021 (78,005) (6,554) (49,538) (5,758) (43,278) 71,555 28,277

Net cash flows used in investing activities . . . . . . . . . . . . . . . . . . . . . Financing activities Proceeds from loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Repayment of loans, including interest, net of government grants Purchase of non-controlling interest in subsidiary . . . . . . . . . . . . Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net cash flows used in financing activities . . . . . . . . . . . . . . . . . . . . . Effect of foreign exchange rate changes on cash and cash equivalents . Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents at the beginning of the year . . . . . . . . . . . . Cash and cash equivalents at the end of the year . . . . . . . . . . . . . . . .

50

The following table represents the Groups other financial and operating data for the years presented.
Year ended 31 December 2011 2010 2009

Other financial data: Adjusted EBITDA(1) (in millions of U.S. dollars) . . . . . . . . . . . . . . . . . . . Adjusted EBITDA margin(2) (in percentages) . . . . . . . . . . . . . . . . . . . . . Cash cost of production(3) (in thousands of U.S. dollars) . . . . . . . . . . . . . Cash cost per tonne of coal concentrate produced(4) (in thousands of U.S. dollars per tonne) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital expenditures(5) (in thousands of U.S. dollars) . . . . . . . . . . . . . . . . Net indebtedness/(net cash position) at the end of the year(6) (in thousands of U.S. dollars) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating data: Coking coal extracted (in thousands of tonnes) . . . . . . . . . . . . . . . . . . . . Coal concentrate produced (in thousands of tonnes) . . . . . . . . . . . . . . . .
(1)

319.7 44.0 231,748 49.7 144,437 44,991 6,251 3,765

337.6 47.9 165,286 28.2 137,570

255.1 51.3 151,617 19.5 153,163

(12,409) 122,255 7,160 5,246 10,560 7,810

Adjusted EBITDA represents profit for the year before foreign exchange gains or losses; change in bad debt allowance; depreciation, depletion and amortisation; dividend income; interest income and expense; gain from a bargain purchase of subsidiary, extraordinary loss on disposal of property, plant and equipment and income tax expense. Adjusted EBITDA is not a measure defined by IFRS, is not a measure of financial condition, liquidity or profitability and should not be considered as an alternative to profit for the year determined in accordance with IFRS or operating cash flows determined in accordance with IFRS. Additionally, Adjusted EBITDA is not intended to be a measure of free cash flow for the managements discretionary use, as it does not take into account certain items such as investments in the Groups associates, interest and principal payments on the Groups indebtedness, depreciation and amortisation expenses (because the Group uses capital assets, depreciation and amortisation expenses, it is a necessary element of the Groups costs and ability to generate revenue), working capital needs and tax payments (because the payment of taxes is part of the Groups operations, it is a necessary element of the Groups costs and ability to operate). The Groups management believes that inclusion of Adjusted EBITDA is appropriate to provide additional information to investors about the Groups performance and to provide a measure of results of operations unaffected by differences in capital structures, capital investment cycles and ages of related assets among otherwise comparable companies. Because not all companies calculate Adjusted EBITDA or similarly entitled measures identically, this presentation of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by revenue. Cash cost of production represents cost of sales before transportation costs, cost of resold goods, cost of rendering services, change in finished goods, and depreciation, depletion and amortisation. The Group presents cash cost of production and other measures calculated using cash cost of production because the Groups management considers them important supplemental measures of the Groups operating performance and believes that they are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the coal mining industry. Cash cost of production and other measures calculated using cash cost of production have limitations as analytical tools, and potential investors should not consider them in isolation, or as a substitute for analysis of the Groups results of operations as reported under IFRS. The Groups management believes that it compensates for these limitations by relying primarily on the Groups IFRS results of operations and using cash cost measures only supplementally. Cash cost of production and other measures calculated using cash cost of production are measures of the Groups operating performance that are not required by, or presented in accordance with, IFRS. Cash cost of production and other measures calculated using cash cost of production are not measurement of the Groups operating performance under IFRS and should not be considered as an alternative to profit for the year, operating profit or any other performance measures derived in accordance with IFRS. Raw coal has been restated in tonnes of coal concentrate at the output ratio of 73.2 per cent. for 2011, 76.9 per cent. for 2010 and 73.4 per cent. for 2009. Capital expenditures are defined as cash used for purchases of property, plant and equipment. Net indebtedness/(net cash position) represents loans less deposits and cash and cash equivalents. The Groups management presents net indebtedness/(net cash position) because it considers it an important supplemental measure of the Groups financial condition. Net indebtedness/(net cash position) is not a measure defined by IFRS, is not a measure of financial condition or liquidity and should not be considered in isolation from, or as a substitute for, the Groups financial condition as reported under IFRS.

(2) (3)

(4) (5) (6)

51

The following table reconciles the Groups Adjusted EBITDA to profit for the years presented.
Year ended 31 December 2011 2010 2009 (in thousands of U.S. dollars)

Profit for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjusted for: Foreign exchange (gains)/losses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . Change in bad debt allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capitalised interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortisation of debt issuance cost . . . . . . . . . . . . . . . . . . . . . . Gain from a bargain purchase of subsidiary . . . . . . . . . . . . . . . Extraordinary loss on disposal of property, plant and equipment Reversal of loss on disposal of property, plant and equipment . . Income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation, depletion and amortisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

135,717 10,754 (95)

244,318 (1,826) (815)

117,137 15,529 623

(23) (3) (12) (16,865) (16,519) (12,322) 28,132 26,500 25,307 1,394 1,560 (433) (419) (401) (104,735) 39,395 (3,969) 41,571 39,788 32,966 124,952 110,563 74,692 319,741 337,641 255,079

Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The following table reconciles the Groups cash cost of production to its cost of sales for the years presented.
Year ended 31 December 2011 2010 2009 (in thousands of U.S. dollars)

Cost of sales . . . . . . . . . . . . . . . . . Less: Transportation costs(1) . . . . . . . . . Cost of resold goods . . . . . . . . . . Cost of rendering services . . . . . . Change in finished goods . . . . . . Depreciation, depletion (excluding Depletion of mineral reserve . . . .

........................... ...... ...... ...... ...... mineral ...... .................... .................... .................... .................... reserve) and amortisation . .................... . . . . . .

358,805 9,269 6,488 (4,728) 83,015 33,013 231,748

325,008 48,328 13,398 5,240 (3,020) 64,568 31,208 165,286

263,176 23,656 8,123 3,756 5,416 36,098 34,510 151,617

Cash cost of production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(1)

Includes costs incurred by the Group in connection with transportation of its products from the Mezhdurechensk railway station.

The following table reconciles the Groups net indebtedness (or net cash position) to loans and borrowings for the years presented.
Year ended 31 December 2011 2010 2009 (in thousands of U.S. dollars)

Loans and borrowings . . . . . . . . . . . Less: Long-term bank deposits . . . . . . . Short-term bank deposits . . . . . . . Cash and cash equivalents . . . . . . Net indebtedness/(net cash position)

......................... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

305,270

310,603

331,727

(31,242) (80,179) (158,384) (149,953) (180,100) (164,628) (28,277) 44,991 (12,409) 122,255

52

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the Groups operating and financial results is based on the Financial Statements prepared in accordance with IFRS, as well as managements internal financial and operating records. Prospective investors should read the following discussion together with the whole of this Prospectus, including Risk Factors and the Financial Statements (including the related notes) and should not rely solely on the information set out in this section. All figures presented herein, unless otherwise indicated, have been rounded. The following discussion includes certain forward-looking statements that, although based on assumptions that the Groups management considers to be reasonable, are subject to risks and uncertainties that could cause actual events or conditions to differ materially from those expressed or implied in this Prospectus. Among the important factors that could cause the Groups actual results, performance or achievements to differ materially from those expressed in such forward-looking statements are those factors that are discussed in Forward Looking Statements and Risk Factors in this Prospectus. All statements other than statements of historical fact, such as statements regarding the Groups future financial position, risks and uncertainties related to the Groups business, plans and objectives for future operations, are forward-looking statements. Overview The Group was one of Russias largest producers of coking coal based on volume of production in 2011 (Source: CDU TEK). The Group conducts its business through the Company and 11 of its key subsidiaries located in the Kemerovo region of the Russian Federation. Its principal coal-mining and coal-processing operations consist of three underground mines (the Raspadskaya mine, the MUK-96 mine and the Raspadskaya-Koksovaya mine), one open-pit mine (the Raspadsky open pit) and the Raspadskaya coal concentrate preparation plant. The Group extracted 6.3 million tonnes of raw coal in 2011, 7.2 million tonnes of raw coal in 2010 and 10.6 million tonnes of raw coal in 2009. It produced 3.8 million tonnes of coal concentrate in 2011, 5.2 million tonnes of coal concentrate in 2010 and 7.8 million tonnes of coal concentrate in 2009. The Groups management believes that the Groups reserves of coking coal are one of the largest in Russia. See Industry OverviewRussian Coking Coal Market. The Groups reserves and resources of coking coal, measured as of 31 December 2011 according to the JORC Code, consisted of coking coal proved and probable reserves of 1,314 million tonnes, coking coal measured resources of 1,809 million tonnes and coking coal inferred resources of 262 million tonnes. See Appendix AMineral Experts Report1.5.2 Reserves and Resources Statement. Significant Factors Affecting Results of Operations The accident at the Raspadkaya mine in May 2010 The Groups results of operations have been and continue to be significantly affected by a major accident that occurred at the Raspadskaya mine in May 2010. Two methane explosions at the mine on 8 and 9 May 2010 resulted in the death of 91 miners and rescuers and injuries to more than 130 other people. Coal mining at the Raspadskaya mine, which accounted for 64.9 of all coal extracted by the Group in 2009, was completely suspended for several months. Mining operations resumed at one face in December 2010 and at one additional face in October 2011. As a result of the accident at the Raspadskaya mine, in 2010, the Group recognised a disposal (de-recognition) of property, plant and equipment in the amount of US$39.4 million. In addition, in 2010, expenditures associated with the reconstruction of the Raspadskaya mine after the May 2010 accident were US$93.0 million, including payments and accruals to the families of the deceased and to the injured employees in the amount of US$6.3 million. Based on inspections conducted by the Groups management, a reversal of the loss on disposal of property, plant and equipment located in the disaster area that had been recognised in 2010 was made in 2011. The reversal totalled US$3.6 million and increased other operating income in the statement of comprehensive income for 2011. In 2011, expenditures associated with the reconstruction of the Raspadskaya mine after the May 2010 accident amounted to US$90.6 million. The Groups management currently estimates that total expenditures on reconstruction of the Raspadskaya mine are not expected to exceed US$280 million, of which US$183.6 million was already incurred by 31 December 2011.

53

The accident at the Raspadskaya mine had a significant effect not only on the volume of coal extracted by the Group since May 2010, but also on how the Groups coal concentrate and raw coal were sold in the aftermath of the accident. The Group reduced the volumes of sales to the Russian market by approximately 15 per cent. after the accident and suspended all of its exports in the second half of 2010.(1) In 2011, the Groups exports outside of Russia constituted approximately one per cent. of its total sales by volume (33 thousand tonnes). The Groups management, however, currently has plans to increase sales outside Russia to approximately 30 to 35 per cent. of the Groups total sales in the future. Demand for, and supply of, coking coal The Groups results of operations are significantly affected by the demand for, and supply of, coking coal on the domestic and world markets. The balance between such demand and supply determines prices of coking coal and drives sales volumes. It is principally influenced by fluctuations in demand for steel and coke, volume of steel and coke production, changes in coal extraction capacity and other related factors, which, in turn, are driven by the condition of the Russian and global economies. The major consumers of the Groups coal concentrate and raw coal are large domestic and (until the accident at the Raspadskaya mine in May 2010) foreign steel producers, which need these products from the Group for their coke plants, and, to a lesser extent, other coke producers. Therefore, the Groups results of operations have historically been influenced by the developments in the Russian and world steel markets. Monthly crude steel production in Russia during the period under review was at its lowest in January 2009, at the peak of the global financial and economic crisis, at 3.9 million tonnes (Source: worldsteel association, Steel Statistical Yearbook 2010). As economic conditions in Russia improved, monthly crude steel production started to increase reaching its peak in March 2011 at 6.0 million tonnes. Production then fell to 5.4 million tonnes in September 2011 principally as a result of the impact of the eurozone sovereign debt crisis, but recovered by December 2011 to 5.9 million tonnes (Source: worldsteel.org). Total crude steel production in Russia increased from 60.0 million tonnes in 2009 to 66.9 million tonnes in 2010 (Source: worldsteel association, Steel Statistical Yearbook 2010) and then further increased to 68.7 million tonnes in 2011 (Source: worldsteel.org). Worldwide crude steel production, which was also at its lowest during the period under review in January 2009 at just 86.6 million tonnes (Source: worldsteel association, Steel Statistical Yearbook 2010) at the height of the global financial and economic crisis, reached its peak in May 2011 at 130.0 million tonnes before decreasing to 117.1 million tonnes in December 2011 (Source: worldsteel.org). Total worldwide crude steel production increased from 1,232.4 million tonnes in 2009 to 1,417.3 million tonnes in 2010 (Source: worldsteel association, Steel Statistical Yearbook 2010) and then further increased to 1,490.1 million tonnes in 2011 (Source: worldsteel.org). The Groups management believes that cyclical fluctuations in crude steel production levels and steel prices, which are typically correlated with the crude steel production levels, will continue to affect the Groups revenue. The major proportion of the Groups revenue is derived from sales to large domestic steel producers, such as Evraz, MMK, NMLK and other companies such as Koks, Mechel and Urals Steel. The sales to the four largest customers accounted for 84.9 per cent. of the Groups total revenue in 2011. Demand for the Groups products from these companies will continue to have a significant impact on the Groups results of operations. The total volume of coking coal extracted in Russia in 2009 was 60,973 thousand tonnes. In 2010, the volume increased to 65,110 thousand tonnes, but then decreased to 62,118 thousand tonnes in 2011 (Source: CDU TEK). The Groups results of operations are indirectly affected by increases in coal extraction capacities and sales volumes of its competitors. The Groups management believes that the risk of any significant increase in the coking coal extraction capacities of its Russian competitors in the short and medium term remains limited due to the impact of the following key factors: Prevailing difficult geological and mining conditions that are likely to become more difficult as mining operations are forced to be conducted at even deeper levels; and Significant lead times to a production launch at, and large investments required for, greenfield underground mines and supporting infrastructure.

(1)

The Group was able to suspend all deliveries to customers outside Russia and to reduce the volume of its deliveries to Russian customers by relying on force majeure provisions in its contracts with customers. Force majeure notices were sent to all customers shortly after the Raspadskaya mine accident and none of the customers challenged them.

54

Changes in volume of external sales of coal concentrate and raw coal and average price per tonne of product sold The following table sets out the Groups external sales volumes and average sales prices (calculated as revenue from sales of a particular product in or outside Russia divided by volume of such product sold in a particular year measured in tonnes) of coal concentrate and raw coal sold in 2011, 2010 and 2009 and the percentage change in each item as compared to the prior year.
Year ended 31 December 2011 2010 2009 % change between 2011 and 2010 % change between 2010 and 2009

Sales of coal concentrate:(1) Sales of coal concentrate in Russia (in thousands of tonnes, except percentages) . . . . . . . . . . . . . . . . . . Average price per tonne of coal concentrate sold in Russia(2) (in U.S. dollars per tonne, except percentages) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sales of coal concentrate outside Russia (in thousands of tonnes, except percentages) . . . . . . . . Average price per tonne of coal concentrate sold outside Russia(2) (in U.S. dollars per tonne, except percentages) . . . . . . . . . . . . . . . . . . . . . . . . . . . . External sales of raw coal:(3) External sales of raw coal in Russia (in thousands of tonnes, except percentages) . . . . . . . . . . . . . . . . . . Average price per tonne of raw coal sold in Russia (in U.S. dollars per tonne, except percentages) . . . .
(1) (2) (3) Semi-hard coking coal.

3,702

4,131

5,536

(10.4)%

(25.4)%

. .

159.1 33

117.3 1,223

62.8 2,179

35.6% (97.3)%

86.8% (43.9)%

157.0

100.2

51.2

56.7%

95.7%

. .

952 119.0

337 95.6

26 26.2

182.5% 24.5%

1,196.2% 264.9%

Average price is calculated based on FCA Mezhdurechensk delivery terms. Hard coking coal.

Changes in sales volumes of coal concentrate and raw coal and in average sales prices had a large impact on the revenue of the Group during the period under review because sales of coal concentrate and raw coal accounted for 97.5 per cent., 97.3 per cent. and 97.3 per cent. of the Groups total revenue in 2011, 2010 and 2009, respectively. Fluctuations in average sale prices of coal concentrate and raw coal and production and sales volumes of the Groups products are discussed in the two sub-sections immediately below. Fluctuations in the average sale prices of coal concentrate and raw coal Average sales price per tonne of coal concentrate sold in Russia by the Group in 2011 increased by 35.6 per cent. in comparison with 2010. Average sales price per tonne of coal concentrate sold by the Group outside Russia in 2011 also increased in comparison with 2010 but, due to a very large decrease in the volume of such sales between the two years as a result of the accident at the Raspadskaya mine in May 2010, such an increase in the average sales price had only a small impact on the Groups revenue in 2011. Average sales price per tonne of coal concentrate exported by the Group in 2010 increased by 95.7 per cent. in comparison with 2009, while average sales price per tonne of coal concentrate sold in Russia increased by 86.8 per cent. A large increase in average sales price per tonne of coal concentrate exported by the Group between the two years was, in part, due to its shift towards the Asian export markets, especially China, which made Asian countries the Groups largest export market in 2010 for the first time in its history. The proportion of the Asian markets in the Groups coal concentrate sales volume outside Russia was 72 per cent. in 2010 as compared to just 22 per cent. in 2009. Average sales price per tonne of coal concentrate sold in 2010 in China and Republic of Korea was US$150.7 per tonne and US$150.3 per tonne, respectively, in each case under FOB Russian Far East ports terms, while average sales price per tonne of coal concentrate sold in Ukraine was US$108.6 per tonne (under FCA Mezhdurechensk terms) in that year.

55

The Group does not generally hedge its exposure to the risk of fluctuations in the prices of coal and coal concentrate. The Group typically enters into long-term coal and coal concentrate sales framework contracts with its major customers and negotiates volumes of sales and prices of its products on a quarterly basis. Changes in production and sales volumes of coking coal and coal concentrate The following table sets forth coal extraction volumes at the Groups coal mines and production volumes of coal concentrate at its coal concentrate preparation plant in 2011, 2010 and 2009 and the percentage change in such volumes as compared to the prior year.
% change % change Year ended 31 December between 2011 between 2010 2011 2010 2009 and 2010 and 2009 (in thousands of tonnes, except percentages)

Raspadskaya mine . . . . MUK-96 mine . . . . . . . Raspadskaya-Koksovaya Raspadsky open pit . . .

...... ...... mine(1) ......

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

1,253 1,309 945 2,744 6,251 3,765

3,190 1,830 419 1,721 7,160 5,246

6,856 1,783 22 1,899 10,560 7,810

(60.7)% (28.5)% 125.5% 59.4% (12.7)% (28.2)%

(53.5)% 2.6% 1,804.5% (9.4)% (32.2)% (32.8)%

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Raspadskaya coal concentrate preparation plant . . .

(1)

Includes Koksovaya mine since 28 April 2010. ZAO Koksovaya merged with ZAO Raspadskaya-Koksovaya on 1 February 2011.

The Group extracted 10,560 thousand tonnes of coking coal and produced 7,810 thousand tonnes of coal concentrate in 2009. In May 2010, the accident at the Raspadskaya mine resulted in a suspension of coal extraction operations for several months, which severely cut the Groups total coal extraction capacity. Principally as a result of the suspension of coal mining at the Raspadskaya mine after the accident in May 2010, the volume of coking coal extracted at this mine in 2010 decreased by 3,666 thousand tonnes to 3,190 thousand tonnes as compared to 6,856 thousand tonnes in 2009. For the same reason, the volume of coal concentrate produced by the Group decreased by 2,564 thousand tonnes to 5,246 thousand tonnes in 2010 as compared to 7,810 thousand tonnes in 2009. The Group recommenced coal extraction at the Raspadskaya mine on 16 December 2010. Coal extraction initially started only at face 4-9-21 bis (seam 9) with coal reserves of approximately 600 thousand tonnes. Another significant development related to the Groups coal extraction capacity in 2010 was the acquisition of a 100 per cent. ownership interest in ZAO Koksovaya, the holder of a licence for coal field No. 1 (Koksovaya mine) located in Mezhdurechensk, from Evraz, one of the Companys Controlling Shareholders, in April 2010. The Group extracts coking coal of grades K (coking) and KO (coking semi-lean) at the Koksovaya mine. Koksovaya mine was developing the same coal seams as the Groups RaspadskayaKoksovaya mine because both mines are located in the neighbouring subsoil areas of the Olzherasskoe coalfield in Mezhdurechensk. Development of the Koksovaya mine cannot be considered separately from the development of the RaspadskayaKoksovaya mine because both subsoil areas of the integrated coal deposit will be developed under a single plan that implies consecutive mining of the upper seams ready for extraction by using the infrastructure of the RaspadskayaKoksovaya mine. Reflecting this interdependence, ZAO Koksovaya was merged with ZAO RaspadskayaKoksovaya on 1 February 2011. Coal extraction at the Koksovaya and Raspadskaya-Koksovaya mines amounted to 419 thousand tonnes in 2010, including pre-production extraction at the Raspadskaya-Koksovaya mine in the amount of 57 thousand tonnes. The large increase in the volume of sales of raw coal in 2010 as compared to 2009 reflects the terms of a long-term agreement with Evraz related to the sale of ZAO Koksovaya to the Group in April 2010. This agreement effectively required the Group to sell all of its raw coal extracted at coal field No. 1 at the RaspadskayaKoksovaya mine to Evraz in 2010 and 2011 and also requires the Group to sell to Evraz coal concentrate produced from 1,080 thousand tonnes of raw coal extracted at the Raspadskaya Koksovaya mine each year from 2012 to 2019. Any excess of raw coal above this threshold can be sold to third parties. In 2011, the Company commenced coal extraction at one additional face at the Raspadskaya mine, with the volume of coking coal extracted at this mine reaching 1,253 thousand tonnes in that year, which, however, was still significantly below the volume of coking coal extracted at the Raspadskaya mine in 2010

56

(3,190 thousand tonnes). In the same year, the RaspadskayaKoksovaya and Koksovaya mines increased their combined output to 945 thousand tonnes (from 419 thousand tonnes in 2010) and the Raspadsky open pit increased its output to 2,744 thousand tonnes (from 1,721 thousand tonnes in 2010). Despite of these positive developments, the total volume of coking coal extracted by the Group in 2011 decreased by 909 thousand tonnes as compared to 2010. Reflecting this decrease in the volume of extracted coal, the volume of coal concentrate produced by the Group in 2011 decreased as well by 1,481 thousand tonnes as compared to the prior year. Cash costs of raw coal extraction and coal concentrate preparation The Groups competitiveness and long-term profitability are, to a significant degree, dependent upon its ability to maintain low-cost and efficient operations. The following table sets forth cash cost of production(1) (including cash costs of raw coal extraction, coal concentrate preparation and coal concentrate and raw coal transportation) and other components of the cost of sales in 2011, 2010 and 2009 and the percentage change in such cash cost of production and other components of the cost of sales as compared to the prior year.
% change % change Year ended 31 December between 2011 between 2010 2011 2010 2009 and 2010 and 2009 (in thousands of U. S. dollars, except percentages)

Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . Less: Transportation costs(1) . . . . . . . . . . . . . . . . Cost of resold goods . . . . . . . . . . . . . . . . Cost of rendering services . . . . . . . . . . . . . Change in finished goods . . . . . . . . . . . . . Depreciation, depletion (excluding mineral reserve) and amortisation . . . . . . . . . . . Depletion of mineral reserve . . . . . . . . . .

. . . . . . .

358,805 9,269 6,488 (4,728) 83,015 33,013 231,748 209,119 19,113 3,516

325,008 48,328 13,398 5,240 (3,020) 64,568 31,208 165,286 141,781 16,837 6,668

263,176 23,656 8,123 3,756 5,416 36,098 34,510 151,617 131,494 15,580 4,543

10.4% (100)% (30.8)% 23.8% (56.6)% 28.6% 5.8% 40.2% 47.5% 13.5% (47.3)%

23.5% 104.3% 64.9% 39.5% n/a 78.9% (9.6)% 9.0% 7.8% 8.1% 46.8%

Cash cost of production . . . . . . . . . . . . . . . . . Including: Cash cost of raw coal extraction . . . . . . . . . . . . Cash cost of coal concentrate preparation . . . . . Cash cost of coal concentrate and raw coal transportation(2) . . . . . . . . . . . . . . . . . . . . .
(1) (2)

Includes costs incurred by the Group in connection with transportation of its products from the Mezhdurechensk railway station. Includes costs incurred by the Group in connection with transportation of its products between the coal concentrate preparation plant and the Mezhdurechensk railway station.

The increase in cost of sales in 2011 as compared to 2010 was significantly smaller than the increase in cash cost of production between the same years principally because of a large decrease in transportation costs offset in part by an increase in depreciation, depletion (excluding mineral reserve) and amortisation. The Group did not incur any transportation costs in 2011 because all of its domestic sales and sales to Ukraine in that year were on FCA Mezhdurechensk terms, under which the purchaser of a product incurs all transportation expenses. For the explanation of an increase in depreciation, depletion (excluding mineral reserve) and amortisation in 2011, seeResults of OperationsCost of salesDepreciation, depletion and amortisation.
(1) Cash cost of production represents cost of sales before transportation costs, cost of resold goods, cost of rendering services, change in finished goods, and depreciation, depletion and amortisation. The Group presents cash cost of production and other measures calculated using cash cost of production because the Groups management considers them important supplemental measures of the Groups operating performance and believes that they are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the coal mining industry. Cash cost of production and other measures calculated using cash cost of production have limitations as analytical tools, and potential investors should not consider them in isolation, or as a substitute for analysis of the Groups results of operations as reported under IFRS. The Groups management believes that it compensates for these limitations by relying primarily on the Groups IFRS results of operations and using cash cost measures only supplementally. Cash cost of production and other measures calculated using cash cost of production are measures of the Groups operating performance that are not required by, or presented in accordance with, IFRS. Cash cost of production and other measures calculated using cash cost of production are not measurement of the Groups operating performance under IFRS and should not be considered as an alternative to profit for the year, operating profit or any other performance measures derived in accordance with IFRS.

57

The increase in cost of sales between 2010 and 2009 significantly exceeded the increase in cash cost of production between the same years principally because of large increases in transportation costs and depreciation, depletion (excluding mineral reserve) and amortisation in 2010 as compared to the previous year. For the reasons behind an increase in transportation costs in 2010, seeResults of OperationsCost of salesTransportation costs. A very large proportion of higher transportation costs resulting from a switch to sales under FOB Russian Far East ports terms in respect of sales of the Groups coal concentrate in Asian markets, however, was recovered by the Group in its revenue as such transportation costs were included in the price of coal concentrate sold to customers in Asian markets. For the explanation of an increase in depreciation, depletion (excluding mineral reserve) and amortisation in 2010, seeResults of OperationsCost of salesDepreciation, depletion and amortisation. The following table sets forth the components of cash cost of production in 2011, 2010 and 2009 and the percentage change in such components as compared to the prior year.
% change % change Year ended 31 December between 2011 between 2010 2011 2010 2009 and 2010 and 2009 (in thousands of U. S. dollars, except percentages)

Payroll . . . . . . . . . . . . . . . . . Payroll taxes . . . . . . . . . . . . . Other taxes . . . . . . . . . . . . . . Materials . . . . . . . . . . . . . . . Electricity . . . . . . . . . . . . . . . Other cash costs and expenses

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

73,787 28,767 16,780 74,324 12,855 25,235 231,748

54,373 15,588 18,051 48,868 11,303 17,103 165,286

57,075 15,335 14,595 39,762 12,728 12,122 151,617

35.7% 84.5% (7.0)% 52.1% 13.7% 47.5% 40.2%

(4.7)% 1.6% 23.7% 22.9% (11.2)% 41.1% 9.0%

Cash cost of production . . . . . . . . . . . . . . . . .

Cash costs associated with raw coal extraction, coal concentrate preparation and coal concentrate and raw coal transportation comprise the largest component of the Groups cost of sales and can be broadly divided into costs attributable to payroll costs in respect of employees whose salaries are included in the Groups cost of sales and related taxes, materials and utilities. The increase in cash cost of production in 2011 as compared to 2010 was principally due to increases in payroll costs and materials. For explanation of these increases, seeResults of OperationsCost of salesPayroll costs andResults of OperationsCost of salesMaterials. The increase in cash cost of production between 2010 and 2009 was principally due to increases in materials costs and other cash costs and expenses. For explanation of these increases, seeResults of OperationsCost of salesMaterials andResults of OperationsCost of salesOther costs and expenses. While the Group both increased the average number of its employees and raised their salaries in 2010, overall staff costs (including payroll taxes) included in the cost of sales decreased in this year. This was due to the fact that, while the Raspadskaya mine was under reconstruction, all the costs relating to the reconstruction of the mine, including payroll costs and related payroll taxes, were included in other operating expenses as opposed to cost of sales. Cash cost of production in absolute terms is less useful for understanding the results of operations of the Group than a cash cost per tonne of the Groups coal concentrate produced in a particular year. The calculation of cash cost of coal concentrate production per tonne of coal concentrate produced is based on the concentrate output ratio. The following table sets forth information on the volume of raw coal used in coal concentrate preparation, the volume of coal concentrate produced and the output ratio in 2011, 2010 and 2009 and the percentage change in these volumes or ratios as compared to the prior year.
% change % change Year ended 31 December between 2011 between 2010 2011 2010 2009 and 2010 and 2009 (in thousands of tonnes, except percentages)

Raw coal used in coal concentrate preparation . . Coal concentrate produced . . . . . . . . . . . . . . . . . Output ratio . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1)

5,140 6,818 10,642 3,765 5,246 7,810 73.2%(1) 76.9% 73.4%

(24.6)% (28.2)% (4.8)%

(35.9)% (32.8)% 4.8%

In December 2011, the concentrate output ratio equalled to 75.8 per cent.

An increase in the output ratio helps to reduce the Groups cash cost of production and its cost of sales, in each case, on a per tonne basis. The decrease of the output ratio in 2011 as compared to 2010 was principally due to an increase in ash content of raw coal and the increase in the output ratio in 2010 as compared to 2009 was principally due to a decrease in ash content of raw coal. The ash content of raw coal principally depends on the structure of coal seams being mined.

58

The following table sets forth information on estimated cash cost of raw coal used in coal concentrate preparation, cash cost of coal concentrate preparation, estimated cash cost of coal concentrate transportation and total cash cost of coal concentrate production in 2011, 2010 and 2009 and the percentage change in such cash costs as compared to the prior year.
% change % change Year ended 31 December between 2011 between 2010 2011 2010 2009 and 2010 and 2009 (in thousands of U.S. dollars, except percentages)

Estimated cash cost(1) of raw coal used in coal concentrate preparation(2) . . . . . . . . . . . . . . Cash cost(1) of coal concentrate preparation . . Estimated cash cost(1) of raw coal and coal concentrate transportation(3) . . . . . . . . . . . . Cash cost of coal concentrate production . . . .
(1) (2) (3)

165,366 19,113 2,802 187,281

124,719 16,837 6,272 147,828

132,515 15,580 4,528 152,623

32.6% 13.5% (55.3)% 26.7%

(5.9)% 8.1% 38.5% (3.1)%

Cash costs exclude depreciation, depletion and amortisation. Estimated cash cost per tonne of raw coal used in coal concentrate preparation is a measure calculated based on the volume of raw coal used in coal concentrate preparation and the average cash cost per tonne of raw coal extracted. Includes costs incurred by the Group in connection with transportation of its products between the coal concentrate preparation plant and the Mezhdurechensk railway station.

The following table sets forth information on cash costs of raw coal extraction, coal concentrate preparation and coal concentrate transportation, in each case on a per tonne basis, as well as total cash cost per tonne of coal concentrate produced in 2011, 2010 and 2009 and the percentage change in such cash costs as compared to the prior year.
Year ended % change % change 31 December between 2011 between 2010 2011 2010 2009 and 2010 and 2009 (in U. S. dollars per tonne, except percentages)

Cash cost(1) per tonne of raw coal extracted . . . . . . . . Preparation cash cost(1) per tonne of raw coal used . . Transportation(2) cash cost(1) per tonne of coal concentrate transported . . . . . . . . . . . . . . . . . . . . . Cash cost(1) per tonne of coal concentrate produced(3)
(1) (2) (3) Cash costs exclude depreciation, depletion and amortisation.

.. .. .. ..

32.2 3.7 0.8 49.7

18.3 2.5 1.2 28.2

12.5 1.5 0.6 19.5

75.9% 48.0% (33.3)% 76.2%

46.4% 66.7% 100.0% 44.6%

Includes costs incurred by the Group in connection with transportation of its products between the coal concentrate preparation plant and the Mezhdurechensk railway station. Raw coal has been restated in tonnes of coal concentrate at the output ratio of 73.2 per cent. for 2011, 76.9 per cent. for 2010 and 73.4 per cent. for 2009.

The Groups cash cost per tonne of coal concentrate produced increased significantly both in 2010 as compared to 2009 and in 2011 as compared to 2010 principally due to the impact of the accident at the Raspadskaya mine in May 2010, which resulted in a significant post-accident decreases in the volume of coal extracted, and the volume of coal concentrate produced, by the Group. Similar to any other coal mining company, the Group has significant production costs, which could not have possibly been decreased by an amount sufficient to compensate for the decreases in the volumes of coal extracted and coal concentrate produced by the Group since the May 2010 accident. The Groups management has also taken a decision not to lay off any miners or other employees who worked at the Raspadskaya mine prior to the accident but, instead, to use them in the reconstruction of the Raspadskaya mine and, in respect of certain employees, to transfer them to work at other Groups mines. This decision reflected the need to retain the core of the Raspadskaya mines experienced personnel, who would likely to be difficult to replace when the reconstruction of the Raspadskaya mine is completed. The increase in the Groups cash cost per tonne of coal concentrate produced also reflected increases in average salaries and payroll taxes and in expenses on materials both in 2011 as compared to 2010 and in 2010 as compared to 2009, reflecting a relatively high level of inflation in Russia, the strength of the rouble against the U.S. dollar and rapidly increasing costs of doing business in Russia as its economy expanded at a healthy 4.3 per cent. growth rate both in 2010 and 2011 (Source: Rosstat). The Groups management expects the rouble denominated estimated cash cost per

59

tonne of coal concentrate production to decrease as the Raspadskaya mine increases its production volume. In light of the general tendency of growth in underground mining costs in the coal mining industry, the Company believes that it remains competitive with respect to its cost of sales of coal products as compared to other Russian (on a FCA basis), as well as international (on a FOB basis), producers of coking coal. Trends in staff costs (including payroll taxes) The Groups staff costs (including payroll taxes) in 2011, 2010 and 2009 were US$182.5 million, US$137.8 million and US$99.4 million, respectively. Such costs and taxes accounted for 25.1, 19.5 and 20.0 per cent. of the Groups revenue in 2011, 2010 and 2009, respectively. The following table summarises information on the average number of employees, staff costs (in absolute terms and on a per employee basis) and payroll taxes of the Group in 2011, 2010 and 2009.
Year ended 31 December 2011 2010 2009 % change between 2011 and 2010 % change between 2010 and 2009

Average number of employees . . . . . . . . . . . . Staff costs including capitalised costs (in thousands of U. S. dollars, except percentages) Payroll taxes (in thousands of U.S. dollars, except percentages) . . . . . . . . . . . . . . . . . . . Staff costs (excluding payroll taxes) per employee (in thousands of U.S. dollars, except percentages) . . . . . . . . . . . . . . . . . . . Effective payroll tax rate . . . . . . . . . . . . . . . .

8,178 134,375 48,111

7,879 110,150 27,671

7,474 80,161 19,202

3.8% 22.0% 73.9%

5.4% 37.4% 14.1%

16,431 35.8%

13,981 25.1%

10,725 24.0%

17.5%

30.4%

The increase in the overall staff costs by 32.4 per cent. between 2010 and 2011 was principally due to (i) an increase in the average number of the Groups employees between the two years, mainly due to the full year effect, in 2011, of the acquisition of ZAO Koksovaya on 28 April 2010; (ii) an increase in the real average salary of the Groups employees in 2011 (exceeding the rate of inflation in that year), (iii) an appreciation of the rouble against the U.S. dollar in 2011 and (iv) an increase in payroll taxes between the two years was principally due to the replacement of unified social tax in Russia with social insurance contributions on 1 January 2011, which resulted in an increase of the tax rate from 26 per cent. in 2010 to 34 per cent. in 2011. The rate of social insurance contributions was decreased to 30 per cent. effective on 1 January 2012. The increase in the overall staff costs by 38.7 per cent. between 2009 and 2010 was principally due to (i) an increase in the average number of the Groups employees between the two years, mainly due to the acquisition of ZAO Koksovaya on 28 April 2010; (ii) an increase in the real average salary of the Groups employees in 2010 (exceeding the rate of inflation in that year), (iii) an appreciation of the rouble against the U.S. dollar in 2010 and (iv) a return to the normal workday hours in 2010 after a 30 per cent. reduction in hours worked in place until August 2009, which was accompanied by a return to pre-crisis levels of hours worked and pay. The reduction in hours worked and a corresponding reduction in pay were introduced by the Groups management in November 2008, when the demand for the Groups products sharply decreased due to the impact of the global financial and economic crisis on the Russian economy. Transportation costs All of the raw coal and coal concentrate which the Group sells is transported by railway only or by railway and ship. During the period under review, the Group used the following principal delivery methods for sales of its main products, coal concentrate and raw coal: FCA (Free Carrier): Under FCA Mezhdurechensk arrangement, title to the Groups products was transferred when coal concentrate or raw coal, as applicable, was loaded into the customers railway trucks at the Mezhdurechensk railway station. The Group did not pay for any transportation-related expenses after this point and expenses for transportation under these arrangements were de minimis; and FOB (Free on Board): The Group was responsible for payments in respect of the delivery of coal concentrate to the ports located on the Pacific Ocean in the Russian Far East and for storage of coal

60

concentrate in these ports and loading of coal concentrate onto the ships. This was applicable to deliveries of coal concentrate that required shipment by sea, as was the case with all export sales of coal concentrate to Japan, China and Republic of Korea in 2009 and 2010. The Group made all of its domestic sales of raw coal and coal concentrate and all sales of coal concentrate to Ukraine under FCA Mezhdurechensk terms because such terms involve fewer risks for the seller. All sales to Asia were made under FOB shipping point delivery terms, in which case transportation and other related costs were included in the contract price. The Group is among few Russian coal producers that own and operate a coal transportation network that is directly connected to the federal railway system operated by Russian Railways. The Groups proprietary coal transportation network is operated by its subsidiary TPTU and includes 15 kilometres of railway which connects the Groups production facilities with the federal railway station at Mezhdurechensk, a town located in the Kemerovo region of the Russian Federation. From the Mezhdurechensk railway station, the Groups coal concentrate and raw coal are transported for final delivery to customers or to a port for loading onto a ship via the federal railway system. According to current government policy, annual tariff increases should be in line with inflation. There can be no assurance, however, that this policy will continue. Moreover, rail transportation reforms in Russia lead to creation of significant privately owned operators in this market, whose tariffs are not set by the government and can increase even faster that tariffs of state-owned companies. As transportation costs are paid by the Groups domestic customers and frequently also by its Ukrainian customers, fluctuations of the railway tariffs affect the total cost paid by the Groups customers and, as such, may impact the demand for the Groups coal concentrate from any customers located far from the Groups production site. The Groups transportation costs more than doubled in 2010 as compared to 2009 (from US$23.7 million in 2009 to US$48.3 million in 2010), and accounted for 14.9 per cent. of the Groups total cost of sales in 2010, as compared to 9.0 per cent. of the Groups total cost of sales in 2009. The change was principally due to a substantial increase in export sales of coal concentrate to Asian customers and an increase in railway tariffs discussed above. Export sales of coal concentrate to customers in Asia increased to 876 thousand tonnes in 2010 as compared to 486 thousand tonnes in 2009. In 2011, there were no exports to Asian markets, which was the principal reason for the absence of any transportation costs for the Group in that year. As the Groups management currently plans to resume sales of the Groups products in the Asian markets in 2012. Exchange rates fluctuations The Groups functional currency is the rouble, while its presentation currency is the U.S. dollar. Prices for the Groups domestic sales are set in roubles, while prices for the Groups export sales are set in U.S. dollars. The Groups revenue from domestic sales of coal concentrate and raw coal accounted for 99.2 per cent., 75.3 per cent. and 72.1 per cent. of its total revenue from sales of coal concentrate and raw coal in 2011, 2010 and 2009, respectively. Most of the Groups costs, except for certain purchases of imported equipment and interest payable on loan participation notes, are denominated in roubles. The Group does not hedge its foreign currency exchange rate exposure. The overall impact of fluctuations in the exchange rate of the rouble against the U.S. dollar principally depends on the proportion of the Groups export sales in its total sales and on the outstanding amount of the Groups U.S. dollar-denominated borrowings, as well as on the magnitude of the appreciation or depreciation of the rouble against the U.S. dollar within any particular year. The following table sets forth information on the average exchange rate between the rouble and the U.S. dollar in 2011, 2010 and 2009, the exchange rate between the rouble and the U.S. dollar as of 31 December 2011, 2010 and 2009 and the percentage change in such exchange rates as compared to the prior year.
Year ended 31 December 2011 2010 2009 % change between 2011 and 2010 % change between 2010 and 2009

Average exchange rate (in roubles per one U.S. dollar, except percentages) . . . . . . . . . . . . . . Exchange rate at the end of the year (in roubles per one U.S. dollar, except percentages) . . . . . . . . . . . . . . . . . . . . . . . .

29.3874

30.3692

31.7231

(3.2)%

(4.3)%

32.1961

30.4769

30.2442

5.6%

0.8%

61

Results of Operations The table below sets forth the Groups consolidated income statement for the years ended 31 December 2011, 2010 and 2009.
% change % change Year ended 31 December between 2011 between 2010 2011 2010 2009 and 2010 and 2009 (in thousands of U.S. dollars, except percentages)

Income statement data Revenue Sale of goods . . . . . . . . . . . . . . . . . . . . . Other sales . . . . . . . . . . . . . . . . . . . . . . Cost of sales . . . . . . . . . . . . . . . . . . . . . . . Gross profit . . . . . . . . . . . . . . . . . . . . . . . Selling and distribution costs . . . . . . . . . . . General and administrative expenses . . . . . . Social and social infrastructure maintenance expenses . . . . . . . . . . . . . . . . . . . . . . . . Loss on disposal of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . Foreign exchange gains/(losses) . . . . . . . . . Other operating income . . . . . . . . . . . . . . . Other operating expenses . . . . . . . . . . . . . . Operating profit . . . . . . . . . . . . . . . . . . . . Dividend income . . . . . . . . . . . . . . . . . . . . Interest income . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . Gain from a bargain purchase of subsidiary . Profit before income tax . . . . . . . . . . . . . . Income tax expense . . . . . . . . . . . . . . . . . . Profit for the year . . . . . . . . . . . . . . . . . . .
(1) (2) (3)

707,970 686,343 483,831 18,131(1) 19,263(2) 13,216(3) 726,101 705,606 497,047 (358,805) (325,008) (263,176) 367,296 (4,543) (60,879) (9,117) (7,057) (10,754) 9,512 (95,926) 188,532 23 16,865 (28,132) 177,288 (41,571) 135,717 380,598 (3,504) (52,026) (5,867) (44,100) 1,826 5,075 (92,653) 189,349 3 16,519 (26,500) 104,735 284,106 (39,788) 244,318 233,871 (2,583) (40,600) (5,396) (1,179) (15,529) 1,553 (7,061) 163,076 12 12,322 (25,307) 150,103 (32,966) 117,137

3.2% (5.9)% 2.9% 10.4% (3.5)% 29.7% 17.0% 55.4% (84.0)% n/a 87.4% 3.5% (0.4)% 666.7% 2.1% 6.2% (100.0)% (37.6)% 4.5% (44.5)%

41.9% 45.8% 42.0% 23.5% 62.7% 35.7% 28.1% 8.7% 3640.0% n/a 226.8% 1,212.2% 16.1% (75.0)% 34.1% 4.7% n/a 89.3% 20.7% 108.6%

Including US$9,520 thousand in revenue from sales of other goods. Including US$13,498 thousand in revenue from sales of other goods. Including US$8,477 thousand in revenue from sales of other goods.

Revenue The Groups revenue includes revenue from sales of coal concentrate and raw coal, revenue from sale of other goods and revenue from other sales. During the period under review, revenue from sale of other goods principally consisted of revenue from re-sales of steel products. Revenue from other sales consisted of revenue from rendering of services, which principally included coal transportation services provided locally to other coal companies.

62

The following table sets out revenue from sales of the Groups principal products for 2011, 2010 and 2009, with a further split of revenue from sales of coal concentrate into revenue from sales in Russia and outside Russia, as well as the percentage change in such sales as compared to the prior year.
% change % change Year ended 31 December between 2011 between 2010 2011 2010 2009 and 2010 and 2009 (in thousands of U.S. dollars, except percentages)

Sales of coal concentrate in Russia . . . . . . . . . Sales of coal concentrate outside Russia . . . . . Total sales of coal concentrate Sales of raw coal in Russia . . . Sale of other goods . . . . . . . . Other sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

589,151 5,509 594,660 113,310 9,520 8,611 726,101

484,653 169,497 654,150 32,193 13,498 5,765 705,606

347,932 135,218 483,150 681 8,477 4,739 497,047

21.6% (96.7)% (9.1)% 252.0% (29.5)% 49.4% 2.9%

39.3% 25.4% 35.4% 4,627.3% 59.2% 21.7% 42.0%

Total revenue . . . . . . . . . . . . . . . . . . . . . . . .

The following table sets out the Groups revenue by country to which its products were sold based on the location of customers in 2011, 2010 and 2009 and the percentage of the Groups total revenue represented by sales to each country in these years.
Year ended 31 December % of total % of total revenue 2010 revenue 2009 (in thousands of U.S. dollars, except percentages) % of total revenue

2011

Russia . . . . . . . . . Ukraine . . . . . . . China . . . . . . . . . Republic of Korea Japan . . . . . . . . . Hungary . . . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

720,592 5,509 726,101

99.2% 0.8% 100%

536,109 37,572 73,383 58,542 705,606

76.0% 5.3% 10.4% 8.3% 100%

361,829 84,845 21,043 12,843 11,115 5,372 497,047

72.8% 17.1% 4.2% 2.6% 2.2% 1.1% 100%

Total revenue . . . . . . . . . . . . . . . . . . . . .

The following table sets out the Groups revenue by major customer in 2011, 2010 and 2009 and the percentage of the Groups total revenue represented by sales to each such major customer in these years.
Year ended 31 December % of total % of total revenue 2010 revenue 2009 (in thousands of U.S. dollars) % of total revenue

2011

Evraz(1) . . . . . . . . . . . . . . . . . . . MMK . . . . . . . . . . . . . . . . . . . . Koks . . . . . . . . . . . . . . . . . . . . . NLMK . . . . . . . . . . . . . . . . . . . Mechel . . . . . . . . . . . . . . . . . . . Stroyservice . . . . . . . . . . . . . . . . Ural Steel . . . . . . . . . . . . . . . . . CITIC Metal . . . . . . . . . . . . . . . Daewoo . . . . . . . . . . . . . . . . . . Posco . . . . . . . . . . . . . . . . . . . . ThyssenKrupp MinEnergy GmbH Alcheevskkoks . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . .

. . . . . . . . . . . . .

. . . . . . . . . . . . .

. . . . . . . . . . . . .

. . . . . . . . . . . . .

. . . . . . . . . . . . .

202,478 181,199 156,694 76,001 50,064 24,271 16,522 18,872 726,101

27.9% 25.0% 21.6% 10.5% 6.9% 3.3% 2.3% 2.6% 100%

191,597 89,250 136,081 66,838 37,538 11,860 10,750 57,501 40,511 18,031 9,180 36,469 705,606

27.2% 12.6% 19.3% 9.5% 5.3% 1.7% 1.5% 8.1% 5.7% 2.6% 1.3% 5.2% 100%

103,595 68,106 63,570 64,558 48,351 19,580 9,596 1,246 12,843 1,811 28,695 75,096 497,047

20.8% 13.7% 12.8% 13.0% 9.7% 3.9% 1.9% 0.3% 2.6% 0.4% 5.8% 15.1% 100%

Total revenue . . . . . . . . . . . . . . . . . . . . .
(1) Includes both Russian and Ukrainian operations.

The Groups revenue increased by US$20.5 million, or 2.9 per cent., from US$705.6 million in 2010 to US$726.1 million in 2011. This increase in revenue reflects improved average sales prices of the Groups products in 2011. The impact of higher prices was partially offset by a decrease in sales volumes. The principal products sold by the Group both in 2010 and 2011 were coal concentrate and raw coal, the

63

aggregate sales of which accounted for 97.3 per cent. and 97.5 per cent. of the Groups total revenue in 2010 and 2011, respectively. The proportion of coal concentrate sales in total revenue of the Group decreased from 92.7 per cent. in 2010 to 81.9 per cent. in 2011, whereas the proportion of raw coal sales increased from 4.6 per cent. in 2010 to 15.6 per cent. in 2011. The principal reason for these changes was the growth of coal extraction at the Raspadskaya-Koksovaya mine in 2011. All coal extracted at this mine had to be sold to Evraz (one of the Companys Controlling Shareholders) in the form of raw coal under the terms of a long-term agreement with Evraz related to the sale of ZAO Koksovaya to the Group in April 2010. This agreement effectively required the Group to sell all of its raw coal extracted at coal field No. 1 at the Raspadskaya-Koksovaya mine to Evraz in 2010 and 2011 and also requires the Group to sell to Evraz coal concentrate produced from 1,080 thousand tonnes of raw coal extracted at the RaspadskayaKoksovaya mine each year from 2012 to 2019. The increase in the Groups revenue in 2011 as compared to 2010 was principally driven by a substantial increase in average sales prices of the Groups coal concentrate and raw coal sold in Russia. The average sales price per tonne of coal concentrate sold to domestic customers increased from US$117.3 per tonne in 2010 to US$159.1 per tonne in 2011, while the average sales price per tonne of raw coal sold in Russia increased from US$95.6 per tonne in 2010 to US$119.0 per tonne in 2011, on a FCA Mezhdurechensk basis. Principally as a result of the consequences of the May 2010 accident at the Raspadskaya mine, the volume of domestic sales of coal concentrate decreased from 4,131 thousand tonnes in 2010 to 3,702 thousand tonnes in 2011, a reduction of 10.4 per cent., while the volume of export sales of coal concentrate decreased from 1,223 thousand tonnes in 2010 to just 33 thousand tonnes in 2011, a reduction of 97.3 per cent. The particularly large decrease in the volume of export sales of coal concentrate resulted from the Groups managements decision to suspend exports of coal concentrate in the second half of 2010 and 2011 to minimise shortages of coking coal on the domestic market in the aftermath of the May 2010 accident at the Raspadskaya mine. The Groups revenue in 2010 increased by US$208.6 million, or 42.0 per cent., to US$705.6 million in 2010 from US$497.0 million in 2009. This increase in revenue reflected improved average sales prices of the Groups products in 2010. The impact of higher prices was partially offset by a decrease in sales volumes. The principal products sold by the Group both in 2009 and 2010 were coal concentrate and raw coal, the aggregate sales of which accounted for 97.3 per cent. and 97.3 per cent. of the Groups total revenue in 2009 and 2010, respectively. The proportion of revenue from coal concentrate sales in total revenue of the Group decreased from 97.2 per cent. in 2009 to 92.7 per cent. in 2010, whereas the proportion of revenue from raw coal sales in total revenue of the Group increased from just 0.1 per cent. in 2009 to 4.6 per cent. in 2010. The reason for the increase in revenue from sales of raw coal in 2010 was the sale of 337 thousand tonnes of raw coal in that year, as compared to just 26 thousand tonnes of total sales of raw coal in 2009. The increase in the Groups revenue in 2010 as compared to 2009 was principally driven by a substantial increase in coal concentrate prices. The average sales price per tonne of coal concentrate sold increased from US$51.2 per tonne in 2009 to US$100.2 per tonne in 2010 for export sales of coal concentrate and from US$62.8 per tonne in 2009 to US$117.3 per tonne in 2010 for domestic sales, on a FCA Mezhdurechensk basis. Principally as a result of the suspension of mining at the Raspadskaya mine after the accident in May 2010, the volume of domestic sales of coal concentrate decreased from 5,536 thousand tonnes in 2009 to 4,131 thousand tonnes in 2010, a reduction of 25.4 per cent., while the volume of export sales of coal concentrate decreased from 2,179 thousand tonnes in 2009 to 1,223 thousand tonnes in 2010, a reduction of 43.9 per cent. The particularly large decrease in the volume of export sales of coal concentrate resulted from the Groups managements decision to suspend exports of coal concentrate in the second half of 2010 to minimise shortages of coking coal on the domestic market in the aftermath of the May 2010 accident at the Raspadskaya mine. Prior to May 2010, the Group was diversifying its customer base and expanding its sales in new markets outside Russia. The most important result of such diversification was the shift towards the Asian export markets, especially China, which made Asian countries the Groups largest export market in 2010 for the first time in its history. The proportion of the Asian markets in the Groups coal concentrate sales volume outside Russia was 72 per cent. in 2010 as compared to just 22 per cent. in 2009. The 78 per cent. decrease in the volume of coal concentrate sold to Ukraine between 2009 and 2010 was in large part due to the impact of a slowdown in the Ukrainian metallurgical industry in 2010. Due to the accident at the Raspadskaya mine in May 2010, the Group temporarily suspended export sales and no coal concentrate was sold outside Russia in the second half of 2010.

64

Russian customers who purchased coal concentrate or raw coal from the Group principally included customers that operated large coke production plants. Most of such plants in Russia are owned by integrated steel groups. The Groups major Russian customers in 2009, 2010 and 2011 were large integrated domestic steel producers such as Evraz (one of the Companys Controlling Shareholders), MMK and NLMK, (ii) medium-sized integrated domestic steel producers such as Mechel and Urals Steel and (iii) other integrated metallurgical companies such as Koks, the principal products of which include merchant pig iron and merchant coke. The concentration of sales to the Groups largest customers significantly increased after the May 2010 accident at the Raspadskaya mine. The top three customers (Evraz, MMK and NLMK) in 2009 accounted for 47.5 per cent. of the Groups revenue in that year. In 2010 and 2011, the proportion of total revenue accounted for by revenue from sales to the top three customers (Evraz, Koks and MMK) increased to 59.1 per cent. and 74.4 per cent., respectively. Cost of sales Cost of sales includes cost of production, transportation costs, cost of resold goods, cost of rendering services and change in finished goods. Cost of production can be broadly divided into costs attributable to payroll costs in respect of employees whose salaries are included in the Groups cost of sales and related taxes, other taxes, materials, utilities and depreciation, depletion and amortisation. The following table sets out the components of the Groups cost of sales in 2011, 2010 and 2009 and the percentage change in each of the components of the Groups cost of sales and total cost of sales as compared to the prior year.
Year ended 31 December 2011 2010 2009 (in thousands of U.S. dollars) % change between 2011 and 2010 % change between 2010 and 2009

Payroll . . . . . . . . . . . . . . Payroll taxes . . . . . . . . . . Other taxes . . . . . . . . . . Materials . . . . . . . . . . . . Electricity . . . . . . . . . . . Other costs and expenses

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

73,787 28,767 16,780 74,324 12,855 25,235 231,748 83,015 33,013

54,373 15,588 18,051 48,868 11,303 17,103 165,286 64,568 31,208

57,075 15,335 14,595 39,762 12,728 12,122 151,617 36,098 34,510

35.7% 84.5% (7.0)% 52.1% 13.7% 47.5% 40.2% 28.6% 5.8% 33.2% (100)% (30.8)% 23.8% 56.6% 10.4%

(4.7)% 1.6% 23.7% 22.9% (11.2)% 41.1% 9.0% 78.9% (9.6)% 17.5% 104.3% 64.9% 39.5% n/a 23.5%

Cash cost of production . . . . . . . . . . . . . . . Depreciation, depletion (excluding mineral reserve) and amortisation . . . . . . . . . . . . Depletion of mineral reserve . . . . . . . . . . . . Cost of production . . . . . Transportation costs(1) . . . Cost of resold goods . . . . Cost of rendering services Change in finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

347,776 261,062 222,225 48,328 23,656 9,269 13,398 8,123 6,488 5,240 3,756 (4,728) (3,020) 5,416 358,805 325,008 263,176

Cost of sales . . . . . . . . . . . . . . . . . . . . . . .
(1)

Includes costs incurred by the Group in connection with transportation of its products from the Mezhdurechensk railway station.

The Groups cost of sales increased by US$33.8 million, or 10.4 per cent., from US$325.0 million in 2010 to US$358.8 million in 2011. The Groups cost of production increased from US$261.1 million in 2010 to US$347.8 million in 2011. This increase was primarily due to increases in payroll and payroll taxes, materials and depreciation, depletion (excluding mineral reserve) and amortisation, which are discussed below. The impact of this increase in the Groups cost of production in 2011 as compared to 2010 on cost of sales was partially offset by a decrease in transportation costs between the two years, which is also discussed below. The Groups cost of sales increased by US$61.8 million, or 23.5 per cent., from US$263.2 million in 2009 to US$325.0 million in 2010. The Groups cost of production increased from US$222.2 million in 2009 to US$261.1 million in 2010. This increase was primarily due to increases in depreciation, depletion (excluding mineral reserve) and amortisation; materials and other costs and expenses, which are discussed below.

65

Payroll costs and payroll taxes An increase in payroll costs in 2011 as compared to 2010 in the amount of US$19.4 million, or 35.7 per cent., was principally due to (i) an increase in the average number of the Groups employees whose salaries were accounted for in cost of sales between the two years, mainly due to the full year effect, in 2011, of the acquisition of ZAO Koksovaya on 28 April 2010, (ii) an increase in the real average salary of the Groups employees whose salaries were accounted for in cost of sales in 2011 (exceeding the rate of inflation in that year) and (iii) an appreciation of the rouble against the U.S dollar in 2011. A large increase in payroll taxes in 2011 as compared to 2010 was also, in part, due to the impact of these developments. But this increase was also caused by the replacement of unified social tax in Russia with social insurance contributions on 1 January 2011, which resulted in an increase of the tax rate from 26 per cent. in 2010 to 34 per cent. in 2011. The rate of social insurance contributions was decreased to 30 per cent. effective on 1 January 2012. Moreover, beginning on 1 January 2011, new insurance contributions covering work-related accidents were introduced for certain categories of miners. A decrease in payroll costs in 2010 as compared to 2009 in the amount of US$2.7 million, or 4.7 per cent., was principally due to the fact that, while the Raspadskaya mine was under reconstruction, all the costs relating to the reconstruction of this mine, including payroll costs, were included in other operating expenses as opposed to cost of sales. The impact of this change was partially offset by a 4.3 per cent. decrease in the average rouble to U.S. dollar exchange rate in 2010 as compared to 2009. Materials A US$25.5 million, or 52.1 per cent., increase in materials costs in 2011 as compared to 2010 was principally due to (i) a significant (43 per cent.) increase in overburden removal operations at the Raspadsky open pit, (ii) an increase in the distance to dumps to which such overburden had to be transported, (iii) an increase in the average price of diesel fuel used and (iv) higher expenditures on repairs of mining equipment. A US$9.1 million, or 22.9 per cent., increase in materials costs in 2010 as compared to 2009 was principally due to (i) a significant (23 per cent.) increase in overburden removal operations at the Raspadsky open pit in 2010 as compared to 2009 and (ii) higher expenditures on repairs of mining equipment. Other costs and expenses A US$8.1 million, or 47.5 per cent., increase in other costs and expenses in 2011 as compared to 2010 was principally due to (i) increase in the expenditures on blasting operations due to an increased depth of the open pit and an increase in overburden removal operations at the Raspadsky open pit and (ii) higher expenditures on repairs of mining equipment and properties. A US$5.0 million, or 41.1 per cent., increase in other costs and expenses in 2010 as compared to 2009 was principally due to (i) higher expenditures on blasting operations as a result of an increase in overburden removal operations at the Raspadsky open pit, (ii) repairs of mining equipment at the MUK-96 mine and (iii) repairs of mining equipment and other assets at the Koksovaya mine. Depreciation, depletion and amortisation Depreciation, depletion and amortisation was the major component of the Groups cost of production, comprising 33.4 per cent., 36.7 per cent. and 31.8 per cent. of such cost in 2011, 2010 and 2009, respectively. A US$18.4 million, or 28.6 per cent., increase in depreciation, depletion (excluding mineral reserve) and amortisation charges in 2011 as compared to 2010 was principally due to (i) the additions of property, plant and equipment, (ii) the full-year effect, in 2011, of the acquisition of ZAO Koksovaya in April 2010 on the Groups depreciation, depletion (excluding mineral reserve) and amortisation in 2011 (i.e., assets of ZAO Koksovaya were depreciated for a full year in 2011, but only for slightly more than eight months since the acquisition of this mine in 2010) and (iii) the lower average rouble to the U.S. dollar exchange rate. A US$28.5 million, or 78.9 per cent., increase in depreciation, depletion (excluding mineral reserve) and amortisation charges in 2010 as compared to 2009 was principally due to (i) large additions to property, plant and equipment at the end of 2009, (ii) the acquisition of a 100 per cent. interest in ZAO Koksovaya, the holder of a licence for coal extraction at the Koksovaya mine located in Mezhdurechensk, in April 2010 from Evraz and (iii) the lower average rouble to the U.S. dollar exchange rate.

66

Depletion of mineral reserve increased by 5.8 per cent. in 2011 as compared to 2010 and decreased by 9.6 per cent. in 2010 as compared to 2009 principally due to the changes in the volume of extracted coal and the acquisition of ZAO Koksovaya in April 2010. Transportation costs Transportation costs mainly consist of railroad transportation costs from the Mezhdurechensk railway station and expenditures on loading services in ports. In 2011, the Group incurred no transportation costs because all of its domestic sales and sales to Ukraine in that year were on FCA Mezhdurechensk terms, under which the purchaser of a product incurs all transportation-related expenses. As the Groups management currently plans to resume sales of the Groups products in the Asian markets in 2012, transportation costs are expected to increase significantly in 2012 and then further increase in 2013. Transportation costs increased by US$24.7 million, or 104.3 per cent., in 2010 as compared to 2009. This increase was principally due to a significant growth in sales volumes in Asian markets, which increased to 876 thousand tonnes in 2010 as compared to 486 thousand tonnes in 2009. Deliveries to customers in Asia are generally on FOB Russian Far East ports terms, under which the Group is responsible for transportation expenses until its products are loaded onto a ship in one of the ports in the Russian Far East. To a lesser extent, the increase in transportation costs in 2010 as compared to 2009 was also due to an increase in railroad tariffs in 2010. Gross profit and gross margin The Groups gross profit decreased by US$13.3 million, or 3.5 per cent., from US$380.6 million in 2010 to US$367.3 million in 2011, while gross margin decreased from 53.9 per cent. in 2010 to 50.6 per cent. in 2011. This decrease reflected the growth in costs which exceeded revenue growth. The Groups gross profit increased by US$146.7 million, or 62.7 per cent., from US$233.9 million in 2009 to US$380.6 million in 2010, while gross margin increased from 47.1 per cent. in 2009 to 53.9 per cent. in 2010. This increase reflected a significant increase in revenue, which was partially offset by an increase in costs. General and administrative expenses The following table sets out the components of the Groups general and administrative expenses in 2011, 2010 and 2009 and the percentage change in each of the components of the Groups general and administrative expenses and total general and administrative expenses as compared to the prior year.
% change % change Year ended 31 December between between 2011 2010 2009 2011 and 2010 2010 and 2009 (in thousands of U.S. dollars, except percentages)

Payroll . . . . . . . . . . . . . . . . . Payroll taxes . . . . . . . . . . . . . Other taxes . . . . . . . . . . . . . . Materials . . . . . . . . . . . . . . . Depreciation and amortisation Other costs and expenses . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

26,020 5,524 10,745 2,475 4,259 11,856 60,879

22,104 3,786 10,543 1,425 3,584 10,584 52,026

16,815 2,376 9,134 875 2,456 8,944 40,600

17.7% 45.9% 1.9% 73.7% 18.8% 12.0% 17.0%

31.5% 59.3% 15.4% 62.9% 45.9% 18.3% 28.1%

Total general and administrative expenses . . . .

The Groups general and administrative expenses increased by US$8.9 million, or 17.0 per cent., from US$52.0 million in 2010 to US$60.9 million in 2011. Such increase was principally due to the increases in payroll costs and payroll taxes, which collectively accounted for 63.9 per cent. of the total increase in general and administrative expenses. A 17.7 per cent. increase in payroll costs between the two years was principally due (i) an increase in the average number of the Groups employees whose salaries were accounted for in the Groups general and administrative expenses, (ii) an increase in real salaries of such employees in 2011 (exceeding the rate of inflation in that year) and (iii) an appreciation of the rouble against the U.S. dollar in 2011. A 45.9 per cent. increase in payroll taxes in 2011 as compared to 2010 was so much higher than the increase in payroll costs between the same year because of the replacement of unified social tax in Russia with social insurance contributions on 1 January 2011, which resulted in an increase of the tax rate from 26 per cent. in 2010 to 34 per cent. in 2011.

67

The Groups general and administrative expenses increased by US$11.4 million, or 28.1 per cent., from US$40.6 million in 2009 to US$52.0 million in 2010. Such increase was principally due to the increases in payroll costs, payroll taxes, other taxes and other costs and expenses, which collectively accounted for 85.3 per cent. of the total increase in general and administrative expenses. A 31.5 per cent. increase in payroll costs between the two years was principally due to a return to the normal workday hours in 2010 after a 30 per cent. reduction in place until August 2009 and a Group-wide increase in employees pay implemented in June 2010. A US$1.4 million increase in other taxes was principally due to the increase in the Groups property tax, which was the main component of such other taxes. The increase in property tax was principally due to the addition of new mining equipment, the completion of the second stage of development of the Raspadskaya coal concentrate preparation plant in the second half of 2009 and the acquisition of the Koksovaya mine in April 2010. A US$1.6 million increase in other costs and expenses in 2010 as compared to 2009 was principally due to an increased level of certain outsourcing services such as cleaning and security. Loss on disposal of property, plant and equipment The profit or loss on disposal (de-recognition) of property, plant and equipment is calculated as the difference between the net disposal proceeds, if any, and the carrying amount of the items being disposed. Loss on disposal of property, plant and equipment decreased by US$37.0 million from US$44.1 million in 2010 to US$7.1 million in 2011. As a result of the accident at the Raspadskaya mine in May 2010, the Group recognised a disposal (de-recognition) of property, plant and equipment in the amount of US$39.4 million. The disposal was estimated based on inspections conducted by the Groups management. Due to the fire continuing in certain areas of the Raspadskaya mine, management was not able to inspect all the items of property, plant and equipment located in the disaster area. Foreign exchange gains or losses, net Foreign exchange gains and losses relate to translation difference arising from revaluation of assets and liabilities denominated in foreign currencies (primarily U.S. dollar-denominated loans) and exchange rate differences on sales and purchases of foreign currencies. The Group had net foreign exchange losses in the amounts of US$10.8 million in 2011 and US$15.5 million in 2009 and had net foreign exchange gains in the amount of US$1.8 million in 2010. Net foreign exchange losses or gains were principally due to the revaluation of the Groups U.S. dollar-denominated borrowings (principally its 7.5 per cent. loan participation notes issued in 2007). Other operating income or expenses, net Other operating income and expenses consist of various items that are not typical for the Groups business and non-recurring income and expenses. Net other operating expenses decreased by US$1.2 million, or 1.3 per cent., from US$87.6 million in 2010 to US$86.4 million in 2011. In contrast to 2010 and 2011, net other operating expenses amounted to just US$5.5 million in 2009. Such a large increase in net other operating expenses in 2010 and 2011 in comparison with 2009 was principally due to the impact of the Raspadskaya mine accident, which occurred in May 2010, on the Groups expenditures. The Group accounts for expenses associated with the reconstruction of the Raspadskaya mine after the accident as other operating expenses. Such expenses include payroll and payroll taxes, cost of materials, electricity, services, drilling and other expenses. In addition, after the Raspadskaya mine suspended coal mining in May 2010, depreciation and amortisation of its production-related property, plant and equipment not used in coal mining has been included in other operating expenses. Operating profit and operating margin The Groups operating profit decreased by US$0.8 million, or 0.4 per cent., from US$189.3 million in 2010 to US$188.5 million in 2011, while operating margin decreased from 26.8 per cent. in 2010 to 26.0 per cent. in 2011. In 2009, the Groups operating profit was US$163.1 million and its operating margin was 32.8 per cent. The decrease in operating margin in 2010 and 2011 as compared to 2009 was principally due to the impact of the accident at the Raspadskaya mine in May 2010.

68

Gain from a bargain purchase of subsidiary On 28 April 2010, the Group acquired a 100 per cent. ownership interest in ZAO Koksovaya, the holder of a licence for coal extraction at the Koksovaya mine located in Mezhdurechensk, from Evraz, for a cash consideration of 1,162,492,000 roubles (US$40 million at the exchange rate of the CBR as of the date of the transaction). Fair values of identifiable assets, liabilities and contingent liabilities of ZAO Koksovaya as of 28 April 2010 amounted to US$144.7 million. As the amount of fair values of net identifiable assets exceeded the fair value of consideration transferred, the Group reviewed the procedures it used to identify and measure the assets acquired and liabilities assumed and the consideration transferred. After the review, the Groups management decided that the procedures and resulting measures were appropriate. As a result, the Group recognised a gain on a bargain purchase of subsidiary in 2010 in the amount of US$104.7 million. The Groups management believes that this transaction resulted in gain due to the ability of the Group to extract the coal reserves at the Koksovaya mine using its existing mining facilities at the Raspadskaya-Koksovaya mine, thereby realising substantial capital expenditures savings. Net interest expense The Groups net interest expense has remained relatively stable throughout the period under review, with a slight decrease from US$13.0 million in 2009 to US$10.0 million in 2010, followed by a slight increase to US$11.3 million in 2011. This reflected a stable profile of the Groups indebtedness, most of which consisted of 7.5 per cent. loan participation notes in the amount of US$300 million, which were issued by the Group on 17 May 2007 and are due on 22 May 2012. In the future periods, net interest expense is expected to increase, reflecting a loan from Raiffeisenbank in the principal amount of US$150 million received by the Group in the first quarter of 2012. Income tax expense The Groups income tax expense increased by US$1.8 million, or 4.5 per cent., from US$39.8 million in 2010 to US$41.6 million in 2011, which was in line with a 2.9 per cent. increase in revenue between the two years. The Groups effective income tax rate (defined as income tax expense divided by profit before income tax) was 23.4 per cent. in 2011, as compared to just 14.0 per cent. in 2010. The statutory tax rate was 20 per cent. in both years. The Groups effective income tax rate in 2011 was higher than the statutory income tax rate principally due to the effect of non-deductible expenses. The Groups effective income tax rate in 2010 was significantly lower than its statutory tax rate principally due to the effect of non-taxable income in the form of a gain on a bargain purchase of subsidiary (ZAO Koksovaya) partially offset by the effect of non-deductible expenses. The Groups income tax expense increased by US$6.8 million, or 20.7 per cent., from US$33.0 million in 2009 to US$39.8 million in 2010. This increase was principally due to higher profit before income tax in 2010 as compared to 2009, offset in part by the effect of non-taxable income recognised in 2010. The Groups effective income tax rate was 22.0 per cent. in 2009, while the statutory income tax rate was 20 per cent. The Groups effective income tax rate in 2009 was slightly higher than its statutory tax rate principally due to the effect of non-deductible expenses. Profit for the year For the reasons discussed above, the Groups profit in 2011 decreased by US$108.6 million, or 44.5 per cent., from US$244.3 million in 2010 to US$135.7 million in 2011. The Groups profit for the year ended 31 December 2010 increased by US$127.2 million, or 108.6 per cent., from US$117.1 million in 2009 to US$244.3 million in 2010. Liquidity and Capital Resources The Groups principal sources of liquidity are cash generated from operating activities, debt financings and access to equity capital markets. The Group plans to fund its future capital expenditures; interest payments and dividends principally out of its operating cash flows and, if necessary, to get further funding for its capital expenditures through additional borrowings.

69

Cash Flows The following table sets forth the Groups summary cash flow information for 2011, 2010 and 2009.
Year ended 31 December 2011 2010 2009 (in thousands of U.S. dollars)

Cash and cash equivalents at the beginning of the year . . Net cash from operating activities . . . . . . . . . . . . . . . . . Net cash used in investing activities . . . . . . . . . . . . . . . . Net cash used in financing activities . . . . . . . . . . . . . . . . Effect of foreign exchange rate changes on cash and cash Cash and cash equivalents at the end of the year . . . . . . Net cash flows from operating activities

......... ......... ......... ......... equivalents .........

. . . . . .

164,628 28,277 71,555 232,712 307,905 221,689 (44,151) (128,746) (209,603) (164,376) (42,892) (49,538) (8,713) 84 (5,758) 180,100 164,628 28,277

Year Ended 31 December 2011 Compared to Year Ended 31 December 2010. Net cash from operating activities decreased by US$75.2 million, or 24.4 per cent., from US$307.9 million in 2010 to US$232.7 million in 2011. This decrease was principally caused by (i) a decrease in the profitability of the Groups operations between the two years and (ii) a US$13.1 million increase in working capital in 2011 as compared to a US$38.1 million decrease in working capital in 2010. The impact of these factors was partially offset by a larger increase in adjustments to profit in 2011 (US$110.1 million) as compared to 2010 (US$25.5 million). The larger increase in adjustments to profit in 2011 as compared to 2010 was principally due to a US$104.7 million gain from a bargain purchase of subsidiary in 2010 (seeYear Ended 31 December 2010 Compared to Year Ended 31 December 2009Gain from a bargain purchase of subsidiary) and, to a lesser extent, due to higher depreciation, depletion and amortisation charges in 2011 (US$125.0 million) as compared to 2010 (US$110.6 million), which was principally related to (i) the additions of property, plant and equipment and (ii) the full-year effect, in 2011, of the acquisition of ZAO Koksovaya in April 2010 on the Groups depreciation, depletion and amortisation in 2011 (i.e., assets of ZAO Koksovaya were depreciated for a full year in 2011, but only for slightly more than eight months since the acquisition of this mine in 2010). Changes in working capital consist of changes in inventories, trade and other receivables, prepayments, receivables from/payables to related parties, trade and other payables, advances from customers and taxes payable, net of taxes receivable. A US$9.9 million net increase in receivables from related parties in 2011 was principally due to an increase in sales to related parties as compared to 2010. A US$42.9 million net decrease in receivables from related parties in 2010 and a US$29.3 million decrease in trade and other receivables in 2010 was principally due to a decrease in revenue from sales of coal concentrate and coal in the fourth quarter of 2010 as compared to the fourth quarter of 2009. A US$12.0 million increase in inventories in 2011 was principally due to the re-commencement of coal mining at the Raspadskaya mine after the May 2010 accident and the related increase in auxiliary materials and spare parts required for operations. A US$33.4 million increase in inventories in 2010 was, to a large degree, due to the disruption of coal extraction process at the Raspadskaya mine, as the stock could not be consumed as intended, and to an increase in spare parts stock. A US$10.5 million decrease in taxes payable (net of taxes receivable) in 2010 was principally due to a decrease in revenue in the second half of 2010 as compared to the second half of 2009 after the accident at the Raspadskaya mine in May 2010. Year Ended 31 December 2010 Compared to Year Ended 31 December 2009. Net cash from operating activities increased by US$86.3 million, or 38.9 per cent., from US$221.6 million in 2009 to US$307.9 million in 2010. This increase was principally caused by (i) an increase in the profitability of the Groups operations between the two years and (ii) a US$38.1 million decrease in working capital in 2010 as compared to US$0.1 million increase in working capital in 2009. The impact of these factors was partially offset by a smaller increase in adjustments to profit in 2010 (US$25.5 million) as compared to 2009 (US$104.6 million). The smaller increase in adjustments to profit in 2010 as compared to 2009 was principally due to (i) a US$104.7 million gain from a bargain purchase of subsidiary in 2010 (seeYear Ended 31 December 2010 Compared to Year Ended 31 December 2009Gain from a bargain purchase of subsidiary), (ii) a much higher deferred income tax benefit in 2010 (US$31.6 million) as compared to 2009 (US$1.0 million) and (iii) US$1.8 million in foreign exchange gains in 2010 as compared to US$15.5 million in foreign exchange

70

losses in 2009 (seeYear Ended 31 December 2010 Compared to Year Ended 31 December 2009Foreign exchange gains or losses, net). The impact of these three factors on total adjustments to profit was partially offset by a much larger loss on disposal of property, plant and equipment in 2010 (US$44.1 million) as compared to 2009 (US$1.2 million) (seeYear Ended 31 December 2010 Compared to Year Ended 31 December 2009Loss on disposal of property, plant and equipment) and higher depreciation, depletion and amortisation charges in 2010 (US$110.6 million) as compared to 2009 (US$74.7 million), which was principally related to the acquisition of a 100 per cent. interest in ZAO Koksovaya, the holder of a licence for coal extraction at the Koksovaya mine located in Mezhdurechensk, in April 2010 from Evraz. As for changes in the working capital in 2009, a US$17.1 million net increase in receivables from related parties a US$13.8 million increase in trade and other receivables and a US$32.0 million increase in taxes payable (net of taxes receivable) were principally due to an increase in revenue in the fourth quarter of 2009 as compared to the fourth quarter of 2008, which was adversely affected by the onset of the global financial crisis in the autumn of 2008. Net cash flows used in investing activities Year Ended 31 December 2011 Compared to Year 31 December 2010. Net cash used in investing activities decreased by US$84.6 million, or 65.7 per cent., from US$128.7 million in 2010 to US$44.2 million in 2011. Cash used in investing activities was principally used for purchases of property, plant and equipment in both 2010 and 2011. Purchases of property plant and equipment increased by US$6.9 million, or 5.0 per cent., from US$137.6 million in 2010 to US$144.4 million in 2011. Purchases of property plant and equipment in 2011 were partially offset by a US$99.7 million decrease in bank deposits (including interest). In 2010, bank deposits (including interest) decreased by US$37.5 million, but the Group also used US$34.0 million (net of cash acquired) to purchase a 100 per cent. interest in ZAO Koksovaya, the holder of a licence for coal extraction at the Koksovaya mine, from Evraz. Year Ended 31 December 2010 Compared to Year 31 December 2009. Net cash used in investing activities decreased by US$80.9 million, or 38.6 per cent., from US$209.6 million in 2009 to US$128.7 million in 2010. Similar to 2010, cash used in investing activities in 2009 was principally used for purchases of property, plant and equipment. Purchases of property plant and equipment decreased by US$15.6 million, or 10.2 per cent., from US$153.2 million in 2009 to US$137.6 million in 2010. This decrease in purchases of property plant and equipment was principally due to much lower expenditures by the Group on mining licences in 2010 (US$0.3 million) as compared to 2009 (US$14.7 million). In addition, in 2009, the Group investment activities included an increase in bank deposits (including interest) of US$57.1 million. Net cash flows used in financing activities Year Ended 31 December 2011. Net cash used in financing activities in 2011 was equal to US$164.4 million. This reflected the repayment of loans, including interest, net of government grants in the amount of US$29.4 million and payment of dividends in the amount of US$135.2 million. Year Ended 31 December 2010. Net cash used in financing activities in 2010 was equal to US$42.9 million. This reflected the repayment of loans, including interest, net of government grants in the amount of US$47.7 million partially offset by US$4.9 million in new borrowings. Year Ended 31 December 2009. Net cash used in financing activities in 2009 was equal to US$49.5 million. This reflected the repayment of loans, including interest, net of government grants in the amount of US$78.0 million and payment of dividends in the amount of US$6.6 million, which were partially offset by US$35.0 million in new borrowings.

71

Indebtedness The following table sets out the Groups loans and borrowings as of 31 December 2011, 2010 and 2009.
Year ended 31 December 2011 2010 2009 (in thousands of U.S. dollars)

7.5 per cent. notes due 2012(1) . Raiffeisenbank . . . . . . . . . . . . BSGV . . . . . . . . . . . . . . . . . . Other Russian banks . . . . . . . Interest payable . . . . . . . . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

299,846 2,923 2,501 305,270

299,420 3,990 4,684 2,509 310,603

298,995 21,624 8,495 23 2,590 331,727

Total loans and borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Long-term bank deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term bank deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Net Indebtedness/(Net Cash Position) . . . . . . . . . . . . . .
(1)

(31,242) (80,179) (158,384) (149,953) (180,100) (164,628) (28,277) 44,991 (12,409) 122,255

The Group issued loan participation notes with a principal amount of US$300 million on 17 May 2007.

The Groups debt was represented principally by 7.5 per cent. loan participation notes in the amount of US$300 million, which were issued by the Group on 17 May 2007 and are due on 22 May 2012. The proceeds of the Notes offered hereby will be used to fund the repayment of these 7.5 per cent. loan participation notes. See Use of Proceeds. One of the covenants in the loan agreement entered into between the Company and the Issuer in connection with the issuance of loan participation notes in 2007 dated 17 May 2007 (the 2007 Loan Agreement) contains a requirement for net leverage ratio, which is a ratio of consolidated net indebtedness to consolidated EBITDA, not to exceed 3. As at 31 December 2011, the Company was in compliance with the net leverage ratio covenant and other covenants in the 2007 Loan Agreement and the net leverage ratio did not exceed 1.0 at any time during the period under review. The Groups management believes that none of the covenants in the 2007 Loan Agreement has been breached since 31 December 2011 or will be breached in the future. The Groups short-term loans during the period under review principally consisted of letters of credit used to purchase imported equipment. The Group had production equipment with a carrying value of US$7.4 million, nil and US$0.2 million pledged to banks as collateral against loans to the Group as of 31 December 2011, 2010 and 2009, respectively. As of 31 December 2011, 2010 and 2009, 99.0 per cent., 97.2 per cent and 93.5 per cent., respectively, of the Groups total debt was denominated in U.S. dollars, with the remainder denominated in euro and roubles. In the first quarter of 2012, the Group received a loan from Raiffeisenbank in the principal amount of US$150 million, which was used by the Group for general corporate purposes. In March 2012, the Company entered into a non-revolving credit line agreement with OAO Sberbank of Russia (Sberbank). This agreement allows the Company to borrow up to US$300 million. Capital Expenditures The following table sets forth the components of the Groups cash used for capital expenditures by type of business activity, its total cash used for capital expenditures in 2011, 2010 and 2009 and the

72

percentage change in such components and the total cash used for capital expenditures as compared to the prior year.
Year ended 31 December 2011 2010 2009 (in thousands of tonnes, except for percentages) % change between 2011 and 2010 % change between 2010 and 2009

Mines . . . . . . . . . . . . . . . . . . . . . Coal concentrate preparation plant Mining licences . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

133,399 5,238 5,800 144,437

133,839 2,055 317 1,359 137,570

135,834 247 14,656 2,426 153,163

(0.3)% 154.9% (100)% 326.8% 5.0%

(1.5)% 732.0% (97.8)% (44.0)% (10.2)%

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The increase in capital expenditures in 2011 as compared to 2010 was principally due to purchases of equipment for the Raspadskaya coal concentrate preparation plant to improve the quality of coal concentrate produced there and purchases of mining equipment used in mine development. The decrease in capital expenditures in 2010 as compared to 2009 was principally due to lower spending on mining licences in 2010. The Groups management currently plans to make capital expenditures in the amount of approximately 5.6 billion roubles and approximately 5.9 billion roubles in 2012 and 2013, respectively, in each case including maintenance capital expenditures and including VAT. Of the total amount of capital expenditures in 2012 and 2013, the Groups management plans to allocate 3.0 billion roubles and 1.4 billion roubles, respectively, to the Raspadskaya mine, 1.3 billion roubles and 2.0 billion roubles, respectively, to the Raspadskaya-Koksovaya mine, 0.5 billion roubles and 0.8 billion roubles, respectively, to the MUK-96 mine, 0.3 billion roubles and 0.2 billion roubles, respectively, to the coal concentrate preparation plant and 0.3 billion roubles and 0.8 billion roubles to the Raspadsky open pit. However, the amount ultimately spent on capital expenditures in 2012 and 2013 will be highly dependent on market conditions, the Groups cash flows from operations and available financing at the time of the proposed expenditures. Most of the Groups capital and other expenditures are not committed and if need arise can be postponed or deferred. The Groups management currently expects to fund these capital expenditures with cash from operations and the proceeds of additional borrowings. Share buyback On 15 November 2011, the Companys board of directors approved a decision to acquire up to 78,079,980 (or up to approximately ten per cent.) ordinary registered undocumented shares of the Company, with the nominal value of 0.004 roubles per share, at the price of 150 roubles per share. The period for submission of applications for share buyback commenced on 19 December 2011 and expired on 31 January 2012. A total number of shares of the Company in relation to which applications for buyback had been properly submitted was 1,008,652,121 shares. On 6 February 2012, the board of directors of the Company approved a coefficient of proportional purchase of 0.077410217. Therefore, by 2 April 2012, the Company entered into share purchase agreements with all shareholders that properly submitted their applications agreeing to acquire their shares on a pro rata basis. The Groups management currently expects that the Company will complete the buyback of its shares in the second quarter of 2012 using its available cash and cash equivalents.

73

Contractual obligations The following table sets forth disclosure of the Groups contractual obligations as of 31 December 2011 based on contractual undiscounted payments, including interest payments.
Payment due by period Less than one to two two to five one year years years (in thousands of U.S. dollars)

Total

Fixed-rate debt Loans and borrowings Principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total fixed-rate debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Variable-rate debt Loans and borrowings Principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total variable-rate debt . . Non-interest bearing debt Trade and other payables . Payables to related parties Dividends payable . . . . . . ......................... ......................... ......................... .........................

300,022 11,251 311,273

300,022 11,251 311,273

2,901 193 3,094 45,863 2,262 125 48,250 2,821 13,187 16,008 378,625

1,658 146 1,804 45,863 2,262 125 48,250 2,821 13,187 16,008 377,335

1,243 47 1,290 1,290

Total non-interest bearing debt . . . . . . . . . . . . . . . . . . . . . . Contractual commitments Contracts for the purchase of equipment . . . . . . . . . . . . . . . Contracts in respect of construction works . . . . . . . . . . . . . . Total other contractual commitments . . . . . . . . . . . . . . . . . Total contractual obligations . . . . . . . . . . . . . . . . . . . . . . . . Off-Balance Sheet Arrangements

As of 31 December 2011, the Group did not have any off-balance sheet arrangements that had, or were reasonably likely to have had, a material effect on the Groups financial condition or results of operations. Quantitative and Qualitative Disclosures about Market Risk The Group is exposed to market risks with respect to foreign currency exchange rates, interest rates and commodity prices volatility. Foreign currency exchange rate risk The Group is exposed to foreign currency exchange risk on sales, purchases, deposits and borrowings that are denominated in a currency other than rouble (the Groups functional currency). The currencies in which these transactions are principally denominated are U.S. dollars and euro. The Group does not have formal arrangements to mitigate foreign currency exchange risk arising from the Groups operations. However, the Groups management believes that this risk was partly mitigated informally as foreign currency-denominated sales in 2009 and 2010 were used to cover servicing and repayment of foreign currency-denominated borrowings.

74

The following table set forth the Groups exposure to foreign currency exchange risk determined as the net monetary position in respective currencies at 31 December 2011, 2010 and 2009.
2011 2010 2009 (in thousands of U.S. dollars)

At 31 December U.S. dollar/rouble . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . euro/rouble . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Great Britain pound sterling/rouble . . . . . . . . . . . . . . . . . . . . . . . . . .

(173,657) (161,808) (208,974) (6,953) (17,211) (25,355) 69

The following table sets forth the sensitivity analysis of the Groups profit before tax to reasonably possible changes in foreign currency exchange rates for the respective currencies, with all other variables held constant, in 2011, 2010 and 2009. In estimating a reasonably possible change, the Groups management assessed the volatility of foreign currency exchange rates during the three years preceding the end of the respective reporting year.
Year ended 31 December 2011 2010 2009 Change in Effect on Change in Effect on Change in Effect on exchange profit exchange profit exchange profit rate before tax rate before tax rate before tax (in (in (in thousands of thousands of thousands of U.S. dollars) U.S. dollars) U.S. dollars)

U.S. dollar/rouble . . . . . . . . . . . . . . . . euro/rouble . . . . . . . . . . . . . . . . . . . . . Great Britain pound sterling/rouble . . . .

(12.50) 12.50 (11.77) 11.77 13.69 (13.69)

21,707 (21,707) 818 (818)

(8.90) 8.90 (11.05) 11.05 (9.65) 9.65

14,401 (14,401) 1,902 (1,902) (7) 7

(14.80) 14.80 (14.00) 14.00 (17.40) 17.40

30,928 (30,928) 3,550 (3,550)

Interest rate risk The Group incurs interest rate risk on loans and borrowings. The Group borrows on both fixed-rate basis and variable-rate basis. The following table sets forth the Groups outstanding interest-bearing debt at 31 December 2011, 2010 and 2009 split into fixed-rate debt and variable-rate debt.
2011 2010 2009 (in thousands of U.S. dollars)

At 31 December Fixed-rate debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Variable-rate debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

299,868 2,901 302,769

299,443 8,651 308,094

299,018 30,119 329,137

The following table sets forth the sensitivity analysis of the Groups profit before tax to reasonably possible changes in interest rates for variable-rate instruments, with all other variables held constant, in 2011, 2010 and 2009. Based on the analysis of exposure during the years presented, reasonably possible changes in floating interest rates at the reporting date would have changed profit before tax by the amounts shown in the

75

following table. This analysis assumes that all other variables, in particular foreign currency rates, remain constant.
Year ended 31 December 2010 2009 Effect on Effect on Effect on Change in profit Change in profit Change in profit interest rate before tax interest rate before tax interest rate before tax (in basis (in (in basis (in (in basis (in points) thousands of points) thousands of points) thousands of U.S. dollars) U.S. dollars) U.S. dollars) 2011

Liabilities denominated in U.S. dollars Decrease in LIBOR . . . . . . . . Increase in LIBOR . . . . . . . . . Liabilities denominated in euro Decrease in LIBOR . . . . . . . . Increase in LIBOR . . . . . . . . .

... ... ... ...

(15) 15 (15) 15

(4) 4

(25) 100 (25) 100

(22) 87

(25) 100 (25) 100

(21) 85 (54) 216

In the first quarter of 2012, the Group received a loan from Raiffeisenbank in the principal amount of US$150 million. The interest on this loan is determined on a variable-rate basis. Due to the size of this loan, the analysis of the interest risk to which the Group was exposed as of 31 December 2011, 2010 and 2009 is not representative of the Groups current interest rate risk exposure. Commodity price risk As the Group operates in only one business segment, it is principally exposed to the effects of fluctuations in the price of raw coking coal and coal concentrate. As the price for these products is not quoted on international markets, the average prevailing price currently relevant to the Groups business is determined based on the existing contracts for sale and purchase of coking coal or coal concentrate in the domestic, Chinese, Korean and Ukrainian markets, which are the major destinations in which the Groups products are sold. The Groups customers principally operate in the steel and, to a lesser extent, coke industries. The steel market has historically faced cyclical fluctuations that have influenced the results of the Groups operations and are expected to continue to do so in the future. The Group does not hedge its exposure to commodity price risk and historically has not been involved in transactions with related derivatives. Critical Accounting Judgments and Estimates The Groups management makes judgments and estimates that affect the reported amounts of assets and liabilities within the next financial period. Estimates and judgements are continually evaluated and are based on the experience of the Groups management and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Groups management also makes certain judgments, apart from those involving estimations, in the process of applying accounting policies. Judgments that have the most significant effect on the amounts recognised in the consolidated financial statements and estimates that could cause a significant adjustment to the carrying amount of assets and liabilities within the next financial year include the following: Impairment of property, plant and equipment The Groups management assesses at each reporting date whether there is any indication that an asset may be impaired. If any such indication exists, the Groups management makes an estimate of the assets recoverable amount. An assets recoverable amount is the higher of an assets or cash-generating units fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or group of assets. If the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessment of the time value of money and the risks specific to the assets. No impairment losses were recognised or reversed in 2011, 2010 and 2009.

76

Useful lives of items of property, plant and equipment The Groups management assesses the remaining useful lives of items of property, plant and equipment at least at each financial year-end and, if expectations differ from previous estimates, the changes are accounted for as a change in an accounting estimate in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. These estimates may have a material impact on the amount of the carrying values of property, plant and equipment and on depreciation expense for the period. More detailed information on estimations of useful lives of property, plant and equipment is provided in Note 8 to the Financial Statements. Mineral reserves Mineral reserves are a material factor in the Groups computation of depreciation, depletion and amortisation charge. The Groups management estimates its mineral reserves in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code). Estimation of reserves in accordance with JORC Code involves some degree of uncertainty. The uncertainty depends mainly on the amount of reliable geological and engineering data available at the time of the estimate and the interpretation of this data, which also requires use of subjective judgement and development of assumptions. The relative degree of uncertainty can be conveyed by placing reserves into one of the principal classifications, either proved and probable reserves or measured and indicated resources. Proved and probable reserves are more certain to be recovered than measured and indicated resources. Estimates of proved and probable reserves are reviewed and revised annually. Revisions occur due to the evaluation or re-evaluation of already available geological, engineering and production data; availability of new data or changes in underlying assumptions. Proved and probable reserves are used to calculate the unit of production rates for depletion. The Group has included in proved and probable reserves those quantities that are expected to be extracted during the next 20 years assuming that certain licences will be renewed in the future. An increase in the Groups licence periods and increase in reported proved and probable reserves would generally lead to lower depletion charge and could materially affect earnings. A reduction in proved and probable reserves will increase depletion charge, reduce income and could also result in an immediate impairment of mining assets. Given the relatively small number of producing mines and open pit operations, it is possible that any changes in reserve estimates, year on year, could significantly affect prospective charges for depletion. Site restoration provision The Group reviews site restoration provision at each end of the reporting period, and adjusts it to reflect the current best estimate in accordance with IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities. The amount recognised as a provision is the best estimate of the expenditure required to settle the present obligation at the end of the reporting period. The risks and uncertainties that inevitably surround many events and circumstances are taken into account in reaching the best estimate of a provision. Considerable judgment is required in forecasting future site restoration costs. Future events that may affect the amount required to settle an obligation are reflected in the amount of a provision if there is sufficient objective evidence that they will occur. More detailed information on estimations of mineral reserves and site restoration provision is provided in Notes 8 and 18, respectively, to the Financial Statements. Fair values of assets and liabilities acquired in business combinations The Group recognises separately, at the acquisition date, the identifiable assets, liabilities and contingent liabilities acquired or assumed in a business combination at their fair values, which involves estimates. Such estimates are based on valuation techniques that require considerable judgment in forecasting future cash flows and developing other assumptions. Post-employment benefits The Group uses actuarial valuation method for measurement of the present value of post-employment benefit obligations and related current service cost. This involves the use of demographic assumptions about the future characteristics of the current and former employees who are eligible for benefits (including, among others, mortality, both during and after employment, rates of employee turnover,

77

disability and early retirement) as well as financial assumptions (including, among others, discount rate, future salary and benefit levels). More details on post-employment benefits are provided in Note 17 to the Financial Statements. Allowances for doubtful accounts The Group makes allowances for doubtful accounts to account for estimated losses resulting from the inability of customers to make required payments. When evaluating the adequacy of an allowance for doubtful accounts, the Groups management bases its estimates on the current overall economic conditions, the ageing of accounts receivable balances, historical write-off experience, customer creditworthiness and changes in payment terms. Changes in the economy, industry or specific customer conditions may require adjustments to the allowance for doubtful accounts recorded in the consolidated financial statements. More detailed information on allowances for doubtful accounts is provided in Note 12 to the Financial Statements. Current taxes Russian tax, currency and customs legislation is subject to varying interpretations and changes occurring frequently. Further, the interpretation of tax legislation by tax authorities as applied to the transactions and activity of the Groups entities may not coincide with that of the Groups management. As a result, tax authorities may challenge transactions and the Groups entities may be assessed additional taxes, penalties and interest, which can be significant. In Russia the periods remain open to review by the tax and customs authorities in respect of tax liabilities for three calendar years preceding the year of review. Under certain circumstances reviews may cover longer periods. More details on current taxes are provided in Note 21 to the Financial Statements. Deferred income tax assets Deferred tax assets are reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. The estimation of that probability includes judgments based on the expected performance. Various factors are considered to assess the probability of the future utilisation of deferred tax assets, including past operating results, operational plan, expiration of tax losses carried forward and tax planning strategies. If actual results differ from these estimates or if these estimates must be adjusted in future periods, the financial position, results of operations and cash flows may be negatively affected. In the event that the assessment of future utilisation of deferred tax assets must be reduced, this reduction will be recognised in the statement of comprehensive income. New Accounting Standards The Group has not applied the following standards and IFRIC Interpretations that have been issued but are not yet effective: IFRS 9 Financial Instruments (effective for annual periods beginning on or after 1 January 2013); IFRS 10 Consolidated Financial Statements (effective for annual periods beginning on or after 1 January 2013); IFRS 11 Joint Arrangements (effective for annual periods beginning on or after 1 January 2013); IFRS 12 Disclosure of Interests in Other Entities (effective for annual periods beginning on or after 1 January 2013); IFRS 13 Fair Value Measurement (effective for annual periods beginning on or after 1 January 2013); Amendments to IAS 1 Presentation of Financial StatementsChanges to the Presentation of Other Comprehensive Income (effective for annual periods beginning on or after 1 July 2012); Amendments to IAS 12 Income TaxesDeferred Taxes: Recovery of Underlying Asset (effective for annual periods beginning on or after 1 January 2012); Amendments to IAS 19 Employee Benefits (effective for annual periods beginning on or after 1 January 2012). Amended IAS 19 Employee Benefits introduced recognition of actuarial gains and losses in other comprehensive income in the period they occur. This amendment is required to be

78

applied retrospectively. At 31 December 2011, the Group had US$21,909,000 actuarial losses (see Note 17 in the Financial Statements). They will increase the Groups liabilities under defined benefit plans. The Groups management expects that the adoption of the pronouncements listed above will not have a significant impact on the Groups results of operations and financial position in the period of initial application.

79

INDUSTRY OVERVIEW Coking Coal Supply & Demand Balance in the Global Market In 2011, total global output of steel increased by 6.8 per cent., which resulted in a higher demand for coking coal, mainly in China and India, as well as in other Asian emerging markets (Source: Ernst & Young, Global Steel2011 trend, 2012 outlook. Competing for Growth in the Steel Sector (Ernst & Young)). The total output of steel in China, India, the Republic of Korea and Japan is projected to increase by 4.5 per cent. in 2012 (Source: Citigroup Global Markets, 2012 Commodity Outlook as of 8 January 2012). In 2010, the demand for coking coal was high and the supply was not sufficient to meet the demand. Floods in Australia and Indonesia had a significant impact on the total coking coal exports of these two countries. Coupled with a revival of the global economy, which resulted in the growth of demand for steel and the recovery of steel production, this insufficiency of supply from Australia and Indonesia resulted in a global deficit of coking coal. (Source: Ernst & Young) The following table sets forth import and export levels in millions of tonnes for the main export and import markets of coking coal.
IMPORTS* (Mt) 2009 2010 2011E 2012E 2013E 2014E 2015E

Japan . . . . . . South Korea . India . . . . . . Europe . . . . . China . . . . . . Brazil . . . . . . Other . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

54.2 16.5 24.6 46.0 30.2 12.5 22.4 206.4

2009

64.8 31.9 35.5 56.8 38.2 12.9 26.1 266.1

2010

53.6 30.3 32.1 57.7 23.1 18.0 28.5 243.3

2011E

61.8 34.7 41.3 52.5 30.0 18.8 34.2 273.2

2012E

61.8 35.5 56.7 57.7 32.2 19.7 41.1 304.6

2013E

61.8 36.4 85.4 58.4 28.1 20.5 37.2 327.9

2014E

61.8 37.0 91.8 59.0 37.5 21.5 41.7 350.2

2015E

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EXPORTS (Mt)

Australia . . . US . . . . . . . . Canada . . . . Russia . . . . . Mozambique Other . . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

135.1 31.4 20.6 10.5 1.0 2.0 200.6 (5.8)

158.9 47.8 26.1 12.4 0.0 13.3 258.6 (7.5)

132.8 53.0 26.1 14.0 4.4 11.9 242.2 (1.2)

163.2 50.0 26.1 12.0 6.0 12.7 269.9

180.4 50.0 25.0 12.0 10.0 12.8 290.2

191.9 52.5 25.0 12.0 12.2 14.3 307.9

192.9 55 25.0 13.0 12.2 17.7 315.8

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IMPLIED MARKET BALANCE . . . . . . . . . . . . . .

Source: *

(3.3) (14.4)

(20) (34.4)

Citigroup Global Markets, Inc., 2012 Commodity Outlook as of 8 January 2012 (Citi)

seaborne

The deficit of coking coal has resulted in further development of greenfield projects all over the world and the expansion of existing production capacities. A particularly large number of projects at the development stage are located in Australia. Canada, the USA, Russia and Mongolia (Source: SourceWatch, Global Use and Production of Coal, 21 January 2012, www.sourcewatch.org (SourceWatch)). However, successful implementation of those projects takes significant time, therefore, the coking coal deficit is expected to remain, at least, for the next three years (Source: Citi).

80

Key Trends and Issues in the World Coking Coal Market The Australian Bureau of Agricultural and Resource Economics (ABARE) projects that by 2015 global steel consumption will rise from 1.3 billion tonnes to 1.8 billion tonnes, an average annual growth rate of six per cent. (Source: SourceWatch); The ABARE forecasts that approximately 61 per cent. of global steel production will be concentrated in Brazil, Russia, India and China by 2015. Major contributing factors to the increasing concentration of steel production in these major developing economies include strong domestic demand, relatively low production costs and, in some cases, large domestic reserves of raw materials (Source: SourceWatch); Several major projects for steel production are planned or under construction in China (see more details in the Section China Coking Coal Market Overview; Indian steel companies such as SAIL and Tata Steel continue to expand production capacity, with Tata Steel projecting to add 10 million tonnes in 2012, which would result in a higher demand for coking coal (Source: Coal Investing News, 2012 Coal Market Outlook as of 30 March 2012); The three major growth markets for metallurgical coal are expected to be Brazil, India and China, with imports over the 2010-2015 periods expected to be 12 per cent., 13 per cent. and 6 per cent. per annum, respectively. ABARE estimates that over the period these three countries alone will account for just under half of all the growth in demand for metallurgical coal. However, by 2015 ABARE expects metallurgical coal demand to still be less or equal to the level of demand in 2008 (Source: SourceWatch); The Republic of Korea and Taiwan present additional growth market opportunities for coking coal; ABARE projects that Australia will remain by far the largest exporter of metallurgical coal, growing to 183 million tonnes in 2015 from 135 million tonnes in 2009 (Source: SourceWatch); The international coking coal market has stabilised in 2012 after the price growth in the previous year, caused by the floods in Australia in the beginning of 2011; Contracts for the first quarter of 2012 were signed at an average price of USD 235 per tonne (HCC) FOB Australia (Source: Rusmet.ru: Mettalurgical Industry of Russia (Rusmet)); There has been little activity at the coking coal market since the beginning of 2012. European and most Asian companies have hardly bought any new volumes and are instead using previously accumulated stock. Several steel producers have not yet used up the raw materials which were delivered to them in accordance with the long-term contracts last year (Source: Rusmet). Market activities in the first quarter of 2012 have also been suspended because of the Chinese New Year and vacations taken by East Asian consumers; It is expected that suppliers will have to show more flexibility in terms of prices. Indian steel companies have recently made bids for the Australian hard coking coal (HCC) at the FOB price not to exceed USD 200-205 per tonne. Over the past few months, many companies have switched to the less expensive coal from South America and Indonesia (Source: Rusmet). The following table sets forth prices for hard coking coal and semi-hard coking coal for the dates presented: Prices
Region Type of coal 31 Dec 31 Jan 31 Mar 31 Jun 31 Sep 30 Nov 31 Dec 2010 2011 2011 2011 2011 2011 2011 $/t

Australia FOB . . . Queensland . . . . . Queensland . . . . . New South Wales . New South Wales .
Source:

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

Hard Coking Coal Hard Coking Coal Semi-hard Coking Coal Hard Coking Coal Semi-soft Coking Coal

243 235 220 175 165

347 335 305 305 295

327 330 325 305 265

309 295 260 260 160

260 265 240 230 160

229 235 215 190 145

220 220 200 185 145

Platts coking coal prices obtained via Thomson Reuters

81

China Coking Coal Market Overview China has the leading position in the global coal industry. It is the largest producer of coal (circa 50 per cent. of global production in 2010 (Source: m.ceip.org)) as well as its largest consumer (48 per cent. of global consumption in 2010 (Source: www.stanlib.com, STANLIB Interesting Chart #62: China worlds largest consumer of energy at 20.3 per cent. of global demand)). While China has sufficient reserves of thermal coal, it has relatively low reserves of coking coal, estimated at approximately 28 per cent. of total coal reserves. Only ten per cent. of Chinas total reserves comprise high quality hard coking coal (Source: IEA World Energy Outlook 2010, Coal-fired Electricity Generation by Region, 3 March 2012, www.worldcoal.org). Two of the largest coal-producing provinces in China are Shanxi and Inner Mongolia (Source: Coal Transport Deficiencies Undermine Chinas Market Economic System, www.caijing.com.cn). Production in the Shanxi Province was impacted after the Provincial Government announced its policies to consolidate and close several mines in early 2010. Consequently, this region dropped to the second position, leaving Inner Mongolia as the largest coal-producing province (Source: Reuters, Chinas Top Coal Province to Trim Coal Output, 30 March 2009). Chinas coke output amounted to 426 million tonnes in 2011. Until 2006, China was meeting its demand for coal from its domestic output, and was a net exporter of coal. However, as a result of continued rapid economic expansion, the country turned into a net importer of coal starting from 2007 (Source: Daniel H. Rosen and Trevor Houser China Energy a Guide for the Perplexed, China Balance Sheet, May 2007 (China Energy). In 2011, Chinas coke import amounted to 44.7 million tonnes. The following tables set forth Chinas total output of coke and its coking coal imports for the years 2009, 2010 and 2011: Chinas coke output, in millions of tonnes
500 426 400 300 M 200 100 0 2009 2010 Output 2011 0 2009 2010 Import 2011 M 384 348 40

Chinas coking coal imports*, in millions of tonnes

60

20

47.3 34.5

44.7

1APR201214243925

9APR201214495814

Source: Steelease Information & Technology Co., Ltd., China Coking Coal and Coke Weekly Monitor as of 13 February 2012 (Steelease) * seaborne and land borne

In China more than 90 per cent. of coking coal is used in blast furnaces (Source: Industry Insight, The Mettalurgical Coke Market in China, Baijun Li). Coking coal demand and pricing largely depend on the development of the steel industry. Chinas crude steel production reached 695.5 Mt in 2011, an increase of 8.9 per cent. from 2010. The growth in Chinas steel output is expected to reach 4-5 per cent. in 2012. Chinas share in world crude steel production increased from 44.7 per cent. in 2010 to 45.5 per cent. in 2011. (Source: World Steel Association, World crude steel output increases by 6.8% in 2001 as of January 23, 2012) Several major projects for steel production are planned or under construction in China, among them are: WISCO Fangcheng, Guanxi; BaoSteel Zhanjiang, in the south-east of the PRC; Caofeidian, in the north-east of the PRC (Source: Resource Investor, Metallurgical Coal: The Hot New Topic, 4 February 2011). The new projects, which will add an estimated 50 million tonnes per year of capacity (Source: WISCO appeals for official approval of Fangcheng port steel base project, www.steelorbis.com, 25 February 2011; Baosteels Zanjiang steelworks will start construction in October, www.chinaccm.com;

82

Kailuan Group positioned to replace Hebei Steel unit in Caofeidian project, www.interfax.com, 3 March 2011) generally utilise larger blast furnaces to take advantage of increased efficiencies and economies of scale. Such blast furnaces require high quality hard coking coal. In 2011, Chinese seaborne metallurgical coal demand was impacted by increased levels of land borne metallurgical coal imports from Mongolia and a high international metallurgical coal price. Recently, there has been a significant demand for imported coking coal because of the closure of many smaller domestic coal mines for cost, safety, environmental and other reasons. Key Trends and Issues in the Coking Coal Market in China In the recent past, China has accounted for around half of the global coking coal trade. The government controls on exports exert a major influence on the world market; The rise in demand for steel in China, followed by India, acted as a major driver for global demand and influenced the pricing for coking coal in 2010-2011; Chinese coke exports were only 0.5 million tonnes in 2009 but recovered to around 3.3 million tonnes in 2010; in 2011 coke exports remained at the same level as in 2010 and amounted to 3.5 million tones. It is still significantly below the 14-15 million tonnes per year levels of 2000-2008 (Source: Coke Market Survey, Annual Report, as of November 2011 (Coke Market Survey)). An increase of Chinas tax rate to 40 per cent. in mid 2008 had a significant impact on the reduction of export volume; In 2011, the Chinese Ministry of Commerce reduced the number of companies issued coke export licences to 41; a number which has been progressively reduced since 2006, when there were 70 authorised coke exporters (Source: Coke Market Survey); Changes in the balance of supply and demand in Chinas coking coal market may have a significant effect on the global coking coal market. Analysis of the Coking Coal Import Mongolian imports to China are quickly replacing Australian imports due to their cost advantage and are expected to be able to fill the gap caused by the decrease in domestic production. The following charts set forth coking coal imports by country in 2010 and 2011: Coking coal imports by country, 2011
Other 25% Australia 23%

Coking coal imports by country, 2010

Other 24% Australia 37%

Canada 7%

Canada 7%

45% 1APR201214244334

Mongolia

Mongolia 32%

1APR201214244204

Source:

China Steel Information Centre and Industry Database, SouthGobi Resources Ltd., www.southgobi.com

It is difficult to estimate the share of coking coal imports from Russia to China as Russian companies often use trading companies registered in other jurisdictions. However, according to official statistics of Russian CDU TEK, the total export of Russian coking coal to China in 2011 was 42 thousand tonnes, whereas the total export of Russian coking coal to Switzerland, for example, was approximately 3.5 million tonnes in the same year. (Source: Federal State Unitary Enterprise, Central Dispatching Department of Fuel and Energy Complex (SE CDU TEK).

83

New Projects Development In order to meet the growing demand for coking coal from China and other Asian countries, global mining companies are expanding their existing production capacities and developing new greenfield projects. Anglo American, BHP Billiton, Peabody Energy, Rio Tinto and Xstrata are developing a number of new projects in coking coal mining, as set forth in the following table:
Project Stage Region Project start date Year Production target date Year Estimated CAPEX (in U.S.$ millions) Operation life Years Expected production Mtpa

Anglo American Grosvenor . . . BHP Billiton Caval Ridge . . Daunia . . . . . Haju . . . . . . . Peabody Energy Burton . . . . . N. Goonyella . Codrilla . . . . . Metropolitan . Middlemount . Millennium . . Rio Tinto Kestrel . . . . . Xstrata Oaky Creek . . Wesfarmers Res. Curragh . . . .

.. .. .. .. . . . . . . . . . . . .

Greenfield Greenfield Greenfield Greenfield Expansion Expansion Expansion Expansion Expansion Expansion Expansion Expansion Expansion

Australia Australia Australia Indonesia Australia Australia Australia Australia Australia Australia Australia Australia Australia

2011 2011 2011 2011 2012 2013 2013 2013 2011 2011 2011 2012 2009

2016 2014 2013 2017 2013 2015 2015 2014 2012 2013 2013 2015 2012

1,700 2,100 800 1,340 na na na 70 na 275 2,000 na 286

26 30 21 na na na na 22 na na 20 32 na

5.0 5.5 4.5 5.5 1.0 2.0 3.0 1.0 2 2.0 1.3 6.0 2.0

.. .. ..

Source: Anglo American Fact Sheet December 2011, www.angloamerican.com; BHP Billiton Mitsubishi Alliance, Caval Ridge Mine, Dannia Mine, BHP Billiton to start work on Indonesia coal project; Credit Suisse Energy Summit 2012 7-8 February, 2012 Peabody Energy Presentation (Peabody); Rio Tinto 2011 full year results, 9 February 2012; Xstrata plc, Half-yearly Report 2011; Wesfarmers Resources, Wesfarmers Annual Report 2011 (Wesfarmers)

Australia and Indonesia Anglo American has stated that it is seeking to triple the coking coal production from its Australian mines by 2020 through the development of Grosvenor Project in Bowen Basin. The Board of Directors approved the development of the project at the end of 2011; On 1 November 2011 BHP Billiton approved the development of Caval Ridge Mine project as well as the extension of production capacity of Peak Downs Mine in Bowen Basin, Queensland, Australia. The total investment into Caval Ridge Mine deposit is estimated at USD 4.2 billion. The annual coking coal output for the deposit is projected at 5.5 million tonnes with the capacity for additional increase of the total production by 2.2 million tonnes. The plans are to increase the total annual output of Peak Downs Mine by 2.5 million tonnes. BHP Billiton is also developing another coking coal project in AustraliaDaunia, with a projected annual output of 4.5 million tonnes. Besides its projects in Australia, BHP Billiton, jointly with Adaro Energy is developing the Haju coal deposit in Indonesia. The extraction of the first half million tonnes of coking coal is planned for 2016. Peabody Energy is developing a whole range of coal mining projects in Australia Peabody Energy is working on an increase of the output at Middlemount and Codrilla deposits, of which the Company received control after the acquisition of Macarthur Coal. The first shipment of coal from the Middlemount deposit took place in mid 2011. The project envisages an increase in the

84

annual production of export metallurgical coal by 2 million tonnes by the end of 2012. The development of Codrilla deposit will help to reach the annual output of 3 million tonnes by 2014. Peabody Energy also continues to make investments to expand production capacities at Burton, Metropolitan, Millennium and North Goonyella deposits (Source: Peabody). Rio Tinto is expanding production capacities at Kestrel deposit in order to increase the total annual coal production by 1.3 million tonnes in mid 2013; In the near future Xstrata intends to approve a plan to increase production capacity at Creek deposit in Australia by 6 million tonnes in 2015; Wesfarmers Resources is expanding production capacity at Curragh mine in Australia. A decision was taken at the end of 2009 to invest USD 286 mln. to expand the Curragh mine by 2 million tonnes annual export capacity. Expansion is now underway and due for completion in early 2012. A feasibility study with respect to a further expansion of Curragh to 10 million tonnes annual export capacity has commenced. Coking coal accounts for approximately 70 per cent. of the total production at this mine (Source: Wesfarmers). Mongolia Erdenes Tavan Tolgoi, a Mongolian state company, is the operator of a coal deposit with total reserves of 6.5 billion tonnes, 40 per cent. of which is high-calorific coking coal. The development project is divided into two parts: one is managed by Erdenes Tavan Tolgoi and, for the other, Mongolian authorities are seeking to attract international investors. Investors received shares in the project in a tender held in June 2011, however, in September 2011 the Mongolian National Security Council declined to approve the agreement with the successful bidders for the development of the coal deposit (Source: www.gazeta.ru, Tavan-Tolgoi did not make it to Hong Kong (in Russian) and Fox Business Mongolia National Security Council Rejected Tavan Tolgoi Plan Source, 16 September 2011, www.foxbusiness.com). Russia In 2010, EVRAZ acquired the licence to develop Vostochny block in the western part of Ulug-Khemskiy coal basin in the Republic of Tuva. Vostochny block has total HCC reserves of more than 550 million tonnes. Construction of a coal-mining enterprise is expected to begin in 2017, which should reach the design output by 2021 (Source: www.evraz.com/ru/press, from 20 October 2010 (Evraz); Yeniseiskaya Industrial Company controlled by the co-owners of Russian Copper Company is developing Elegestskoie coal deposit in Tuva with total reserves of 946 million tonnes of HCC. Test production began in 2008. The company plans to reach 7 million tonnes annual production by 2014. Construction of a railway is a prerequisite for the development of the coal deposit. The Government will co-invest approximately RUR 49 billion (USD 1.6 billion) in the construction of the railway. At the end of 2011, a contractor was selected for the construction of the first 147 km of Kyzyl-Kuragino railway. The completion of the construction is planned in 2.5 years (Source: www.ng.ru/regions, Nezavicimaya Elegestskoe Vozrozhdeniye Tuvy, 21 July 2011); Yakutugol, a division of Mechel Mining, is developing Elginskoie deposit, with the total mineral reserves of 2.19 billion tonnes in accordance with the JORC Code. Elginskiy open pit mine was put into operation in August 2011. The plan is to extract 0.3 million tonnes of coking coal in 2012 and to increase the annual production to 2.4 million tonnes by 2015 (Source: Mechel, www.mechel.com, About us (Mechel)); According to the press, SUEK (Siberian Coal Energy Company) acquired Apsatskoie coal and methane deposit located in Zabaikalskiy region from ITERA at the end of 2011. Its resources are estimated at 2.2 billion tonnes of coking coal. Exploration works began in 2010. The deposits previous owner planned to begin coal production in 2017. The construction of infrastructure and a connecting rail to Baikal-Amur railway is a prerequisite for the development of the coal deposit (Source: www.sibir.ria.ru/economy (in Russian) Itera sells its coal asset in the Zabaikalskiy Region, 3 May 2011 and www.infax.ru/short/business/2010/06/15/apsat.phtml).

85

Russian Coking Coal Market Russia has the worlds second largest coal reserves, with 157 billion tonnes of reserves.
Country (top-5) Anthracite and bituminous Sub-bituminous and lignite in billions of tonnes Total

U.S. . . . Russia . . China . . Australia India . . .

Source:

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. . . . .

. . . . .

108.5 49.1 62.2 37.1 56.1

128.8 107.9 52.3 39.3 4.5

237.3 157.0 114.5 76.4 60.6

BP statistical review, Survey of Energy Resources, World Energy Council 2010

Coking coal accounts for approximately 20.5 per cent. (i.e. above 30 billion tonnes) of the total proved coal reserves in Russia. The following table sets forth coking coal reserves in Russian by coal basin:
YuzhnoYakutskiy, 10%

Pechorskiy, 8% Kuznetskiy, 70% Ulughemskiy, 5% Other, 7%

1APR201214244475
Source: IAC Mineral

Kuznetskiy Coal Basin, in the south of West Siberia, which is the main coal resource base of Russia, holds more than a fourth of the proved coal reserves (51.5 billion tonnes), of which coking coal accounts for more than a half (28 billion tons.) (Source: IAC Mineral) Information on reserves of major coal mining subsidiaries of public companies is presented in the table below. Reserves of major coal mining subsidiaries of public companies
JORC-compliant proved and probable reserves, in millions of tonnes

Company

Ownership

Yakutugol (including Elginskoye) Raspadskaya . . . . . . . . . . . . . . . Southern Kuzbass . . . . . . . . . . . Vorkutaugol . . . . . . . . . . . . . . . Yuzhkuzbassugol . . . . . . . . . . . . Belon . . . . . . . . . . . . . . . . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

2 440 1 314 700 297 269 82*

Mechel Management/EVRAZ Mechel Severstal EVRAZ MMK

Source: Mechel; Raspadskaya, www.raspadskaya.ru; IMC Report; Severstal, www.severstal.com, SeverstalCoal Mining Vorkutaugol; Evraz; MMM, Belon by 2011 plans to increase its coal mining production by 71% and its production of coal concentrate by 65% * non-JORC compliant

Russia ranks fifth in the world coal output. The top four countries are China, the USA, India and Australia. Russias share of the total global production is a little less than five per cent. According to Federal State Statistics Service (Rosstat), total coal production in Russia was 333.8 million tonnes in 2011 or 3.8 per cent. higher than in 2010. Share of the Siberian Federal District

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accounts for 84 per cent. of the total coal production in Russia. The total coking coal production in Russia was 62.1 million tonnes in 2011, which was a reduction of 4.4 per cent. as compared to 2010. The following table sets forth Russias coal output for each year between 2000 and 2011:
360 300 258 240 M 180 197 120 60 61 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Coking coal Source: www.ugolinfo.ru, Coal output in Russia by type of coal Thermal coal 65 63 69 75 70 71 73 69 61 65 62 209 230 239 241 260 242 258 272 284 300 309 314 329 303 323 334

269

276 253

205

190

207

1APR201214244622

Exports to Asian markets via Russian Far East ports accounted for the largest portion of total coking coal exports with 8.5 million tonnes or 41 per cent. in 2011; ports Posiet and Nakhodka accounted for the major part of coal shipments with 3.7 million tonnes and 2.3 million tonnes, respectively. Ukraine, the second largest destination for Russian coking coal exports, accounted for c. 7.5 million tonnes in 2011 or 37 per cent. of total exports, with coke producers being the main consumers of coking coal concentrates. Exports to Europe via Baltic ports is the third important export destination with Ventspils (Lithuania) and Riga (Latvia) together accounting for c. 4.2 million tonnes of coking coal shipments in 2011. The following table sets forth Russian exports of coal concentrate in 2010 and 2011 by destination
25,000 20,633 20,000 thousand tonnes 15,000 17,455 1,338 5,615 10,000 7,540 4,196

5,000

10,400

8,525

0 2010 East North-West (Baltic ports) South-West (Russian ports) Source: www.metcoal.ru, Matrix of Coal Concentrate Exports. 2011 South-West (Ukraine) North-West (Russian ports)

1APR201214244784

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Major coking coal producers in 2011 were the subsidiaries of Russian vertically integrated metallurgical companies. These companies, set forth in the table below, are the major domestic consumers of coking coal.
Output 2011 (in millions of tonnes)

Company

Market share

Ownership

Vorkutaugol . . . . . . Southern Kuzbass . . Yuzhkuzbassugol . . Raspadskaya . . . . . Yakutugol . . . . . . . Kuzbassrazrezugol . Belon . . . . . . . . . . Mezhdurechie . . . . sh. Polosukhinskaya SUEK-Kuzbass . . . . Other . . . . . . . . . .

. . . . . . . . . . .

. . . . . . . . . . .

. . . . . . . . . . .

. . . . . . . . . . .

. . . . . . . . . . .

. . . . . . . . . . .

. . . . . . . . . . .

. . . . . . . . . . .

. . . . . . . . . . .

. . . . . . . . . . .

. . . . . . . . . . .

. . . . . . . . . . .

. . . . . . . . . . .

. . . . . . . . . . .

. . . . . . . . . . .

. . . . . . . . . . .

. . . . . . . . . . .

. . . . . . . . . . .

. . . . . . . . . . .

. . . . . . . . . . .

. . . . . . . . . . .

. . . . . . . . . . .

. . . . . . . . . . .

. . . . . . . . . . .

. . . . . . . . . . .

. . . . . . . . . . .

. . . . . . . . . . .

. . . . . . . . . . .

7.2 6.3 6.3 6.3 6.2 5.0 4.0 3.4 3.1 2.3 12.0 62.1

12% 10% 10% 10% 10% 8% 6% 6% 5% 4% 19%

Severstal Mechel EVRAZ Management/EVRAZ Mechel UGMK MMK Sibuglemet Sibuglemet SUEK

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Source: CDU TEK

Russian coal producers fully meet the domestic demand of metallurgical companies for coking coal and export the excess volume thereby realising the export potential of the coal mining industry. The Russian coal mining industry has a significant export potential, however, the realisation of this potential is restricted by the following key factors: The general state of Russias transport and port infrastructure; Deficit of the rolling stock for consignors; The long distances between production centres and seaports and surface border crossings; Share of the transit cost in the final coal price is constantly rising because of the tariff increases for coal transportation; High depreciation of fixed assets of the coal mining companies. In the end of January 2012, the government of the Russian Federation adopted a programme for development of Russias coal mining industry for the period through 2030. The programme envisages a total investment into the development of the coal mining industry of 3,694 billion roubles. Realisation of the programme is planned in three stages, as set forth below (Source: Long-term development programme of the coal industry of Russia for the period through 2030, Moscow 2012; Government of the Russian Federation Working Day, http://premier.gov.ru/eng/events/news/178481).
Government funding (in billions of roubles) Extrabudgetary funds (in billions of roubles)

Stages

I stage (2011 - 2015) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II stage (2016 - 2020) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III stage (2021 - 2030) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

98 142 11 251

1,653 817 974 3,444

The programme implementation will be based on the principles of a public-private partnership. The programme scope includes implementation of the following objectives that are expected to have a favourable impact on the enhancement of export potential: Creation of excess capacity of seaports; Establishment of a requisite transport infrastructure for the enhancement of coal export via seaports;

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 Development of railway stations in the vicinity of seaports; Elimination of bottlenecks at the Trans-Siberian and Baikal-Amur railway; Establishment of new coal mining centres to include Elginskoie, Elegestskoie, Ulugkhemskoie and Apsatskoie deposits; An increase in coking coal production to 104 million tonnes by 2015, 139 million tonnes by 2020 and 153 million tonnes by 2030; According to programme forecasts, coking coal export should reach 25 million tonnes by 2015, 35 million tonnes by 2020 and 45 million tonnes by 2030. Stage I of the programme envisages construction of Ulak-Elga railway with the total length of 315 km and Kyzyl-Kuragino railway. Railway construction will make it possible to begin development of the foregoing deposits which has been restricted by the absence of a transport infrastructure. The contractor for the construction of the first 147 km of Kyzyl-Kuragino railway was selected at the end of 2011. The plans are to complete the construction in 2.5 years. Russian Railways joint-stock company and Vnesheconombank state corporation signed an agreement on development of the transport infrastructure with 24 of Russias major consignors, which regulated the financing of new development projects of the rail infrastructure. The agreement is intended to provide 100 per cent. fulfillment of the demand for freight transportation through an increase of rail capacity. In particular, industrial enterprises, jointly with Russian Railways, will work out the volumes, timeframe and directions of freight transportation in the long term. The company, in turn, will assess the need of building up rail capacity, estimate the profitability of the foregoing projects and financing sources. Measures for development of the rail and port infrastructure should strengthen Russias position in the global coal market and promote its trend towards export growth which has evolved over the past decade.

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DESCRIPTION OF THE GROUPS BUSINESS Overview The Group was one of Russias largest producers of coking coal based on volume of production in 2011 (Source: CDU TEK). The Group conducts its business through the Company and 11 of its key subsidiaries located in the Kemerovo region of the Russian Federation. Its principal coal-mining and coal-processing operations consist of three underground mines (the Raspadskaya mine, the MUK-96 mine and the Raspadskaya-Koksovaya mine), one open-pit mine (the Raspadsky open pit) and the Raspadskaya coal concentrate preparation plant. The Group extracted 6.3 million tonnes of raw coal in 2011, 7.2 million tonnes of raw coal in 2010 and 10.6 million tonnes of raw coal in 2009. It produced 3.8 million tonnes of coal concentrate in 2011, 5.2 million tonnes of coal concentrate in 2010 and 7.8 million tonnes of coal concentrate in 2009. The Groups management believes that the Groups reserves of coking coal are one of the largest in Russia. See Industry OverviewRussian Coking Coal Market. The Groups reserves and resources of coking coal, measured as of 31 December 2011 according to the JORC Code, consisted of coking coal proved and probable reserves of 1,314 million tonnes, coking coal measured resources of 1,809 million tonnes and coking coal inferred resources of 262 million tonnes. See Appendix AMineral Experts Report 1.5.2 Reserves and Resources Statement. History and Development of the Groups Business The Raspadskaya mine commenced operations in 1973. In 1991, the mine was privatised. The ownership interests in ZAO Raspadskaya, the company created to own and operate the Raspadskaya mine, were transferred to the mines employees. The period from 1991 to 1994 was marked by the deterioration in ZAO Raspadskayas performance principally due to the overall decline in Russias economy in those years, which were characterised by the collapse of the planned economy and the first, often difficult, steps in building a market-oriented economy. In 1994, the Groups current management team took control over ZAO Raspadskayas business operations. The new management team developed and implemented an operational efficiency improvement programme for the period from 1996 through 2005, which sought, among other things, to increase the volume of extracted coking coal, increase labour productivity and reduce coal extraction costs. The management team initially focused on improving operations at existing sites, and then subsequently completed various acquisitions to complement such existing facilities. In 1999, ZAO Raspadskaya acquired a controlling interest in OOO Montazhnik Raspadskoy (Montazhnik Raspadskoy), which manufactures roof bolting and metal grid used in mining operations. In 2000, ZAO Raspadskaya acquired control over OAO Tomusinskoye Cargo Handling Unit (TPTU), which became responsible for coal and, at a later stage, coal concentrate transportation between the Groups mines, the coal concentrate preparation plant and storage facilities, as well as to the Mezhdurechensk railway station. The Company currently owns 58.6 per cent. of TPTU. The expansion of ZAO Raspadskaya operations and operations of its affiliates gathered pace in 2003 when several noteworthy developments took place. First, ZAO Raspadskaya acquired a controlling stake in OOO Olzherasskoye Shaft-Sinking Unit (OShPU), a company involved in construction of underground mine openings and sinking of vertical mine shafts. In addition, several affiliates of ZAO Raspadskaya, which were not at the time owned by ZAO Raspadskaya in full or in part, but operated as parts of a single production complex with it, made progress in developing their businesses. One such affiliate commenced construction of the Raspadskaya coal concentrate preparation plant. The first phase of development of this plant was completed in the fourth quarter of 2005. The plants annual design capacity at this time was 10.5 million tonnes of raw coal processed. Another affiliate, ZAO Razrez(1) Raspadsky (Razrez Raspadsky), commenced extraction of coal in the third quarter of 2003. Finally, a third such affiliate of ZAO Raspadskaya obtained a coal mining licence for the Raspadskaya-Koksovaya mine. By 2004, the Management Shareholders had obtained, directly and indirectly, a 71.5 per cent. equity interest in ZAO Raspadskaya. Furthermore, in 2000, Evraz acquired a 12.5 per cent. equity interest in ZAO Raspadskaya and, by 2004, increased such interest to 19.1 per cent. In March 2004, the shareholdings owned by the Management Shareholders through Adroliv and the shareholdings owned by Evraz through Mastercroft were transferred to Corber Enterprises. Following such event, Mastercroft purchased from
(1) The word razrez in Russian means an open pit mine.

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Adroliv a certain amount of equity interest in Corber Enterprises thereby increasing Mastercrofts equity interest in Corber Enterprises to 50 per cent., with the remaining 50 per cent. owned by Adroliv. Since that time, Corber Enterprises continued to purchase ZAO Raspadskayas shares and, by November 2006, accumulated a 98 per cent. equity interest in it. In 2006, ZAO Raspadskaya, its subsidiaries and certain of its affiliates were subject to a corporate reorganisation that was implemented to consolidate and simplify the ownership structure of coal mining operations controlled by Corber Enterprises and transfer ownership of certain coal mining assets to ZAO Raspadskaya, which was also reorganised into an open joint stock company. This reorganisation resulted in the Company acquiring 100 per cent. equity interests in ZAO Preparation Plant Raspadskaya (Raspadskaya Preparation Plant), Raspadskaya Coal Company, OOO Raspadskiy Ugol (Raspadskiy Ugol) and ZAO Raspadskaya-Koksovaya (Raspadskaya-Koksovaya) from Corber Enterprises for the aggregate amount of US$306.9 million as well as in the acquisition by the Company of a 100 per cent. equity interest in OAO Mezhdurechenskaya Coal Company-96 (MUK-96) and its 99 per cent. owned subsidiary Razrez Raspadsky from Corber Enterprises in exchange for 300,650,000 newly issued ordinary shares of the Company. Prior to this reorganisation, the Company and its subsidiaries operated as a single production complex with its affiliates acquired in connection with the reorganisation, but the Company did not own any equity interest in such affiliates. In November 2006, the Companys controlling shareholder Corber Enterprises Limited offered 140,757,885 of the Companys ordinary shares at a price of US$2.25 per share for placement to investors in the Russian Federation and to qualified investors in offshore transactions in certain other countries, but excluding the United States, Australia, Japan and the Republic of South Africa (the IPO). The shares were listed on list V of the Russian Trading System stock exchange (RTS) under the symbol RASP and on list V of the Moscow Interbank Currency Exchange (MICEX) also under the symbol RASP. The proceeds from the sale of ordinary shares in the offering, accounting for 18 per cent. of the Companys then outstanding share capital, amounted to US$316,705,241 and were received by Corber Enterprises. In May 2007, the Issuer placed US$300 million loan participation notes due May 2012 and transferred the proceeds of the offering to the Company. The Company used such proceeds to repay a US$300 million short-term loan used to fund the reorganisation discussed above. In 2008, the Group completed the second phase of development of the Raspadskaya coal concentrate preparation plant. The design capacity of this plant was increased to 10.5 million tonnes of raw coal processed, while its actual production capacity increased to 15 million tonnes. The third section of this plant that was added in phase two of its development can process not only coal of Russian grades Zh (fat), GZh (gas fat) and GZhO (gas fat semi-lean), but also coal of Russian grades K (coking) and KO (coking semi-lean) extracted at the Groups Raspadskaya-Koksovaya mine. In April 2010, the Company acquired a 100 per cent. ownership interest in ZAO Koksovaya, the holder of a licence for coal extraction at the Koksovaya mine located in Mezhdurechensk, from Evraz, one of its Controlling Shareholders. ZAO Koksovaya was subsequently merged with ZAO RaspadskayaKoksovaya in February 2011. In May 2010, the Group experienced a major accident at its Raspadskaya mine. Two methane explosions on 8 and 9 May 2010 resulted in the death of 91 miners and rescuers. Coal mining at the Raspadskaya mine was completely suspended for several months. SeeOperationsThe Raspadskaya mineAccident at the Raspadskaya mine in May 2010 for details on the consequences of this accident. The reconstruction of the Raspadskaya mine, which is being implemented in line with a series of reconstruction projects developed by Giprougol, consists of four stages. The first stage involved a re-start of coal mining at face 4-9-21 bis (seam 9) with coal reserves of approximately 600 thousand tonnes. The Group recommenced coal extraction at face 4-9-21 bis on 16 December 2010 and has already completed the extraction of coal at this face. The second stage of the reconstruction project involves re-commencement of operations at three different faces (at coal seams 7-7a and 9) and work has already started in October 2011 at face 4-7-25 with coal reserves of approximately 1.4 million tonnes. The Group is currently involved in preparatory work at face 4-9-23, which is expected to allow it to restart work at this face in April 2012. Giprougol is continuing to develop project documentation for the third and fourth stages of reconstruction of the Raspadskaya mine, which would need to be approved by Glavgosekspertiza, the state agency responsible for approval of all new construction and reconstruction projects in the coal mining industry. In 2011, the Group extracted 1.3 million tonnes of coal at the Raspadskaya mine. For a description of safety initiatives recently introduced at the Raspadskaya mine, see Appendix AMineral Experts Report 1.8 Health and Safety.

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Key Strengths The Groups management believes that the Groups key competitive strengths are as follows: The Group was one of Russias largest producers of coking coal in 2011 The Group was one of Russias largest producers of coking coal based on volume of production in 2011 (Source: CDU TEK). The Groups ability to produce large volumes of coking coal concentrate has resulted in many large Russian steel companies, such as Evraz (one of the Companys Controlling Shareholders), MMK, NLMK and several other Russian metallurgical and coke producing companies such as Koks, Mechel and Urals Steel, relying on the Group to supply their coke producing plants with a large proportion of the coal products that are required to operate their businesses. The Groups management believes that such companies rely on the Group for coking coal concentrate supply because, in the past (prior to the major accident at the Raspadskaya mine in May 2010), the Group was able to consistently satisfy its delivery obligations in respect of the requested types of coal concentrate or raw coal for its major customers. Even after the accident in May 2010, when coal extraction at the Raspadskaya mine was completely suspended for several months, the Group only reduced the volume of its deliveries to the Russian market by approximately 15 per cent. as compared to its contractual obligations. In addition, the Group has extensive experience in selling coal concentrate outside Russia, which is particularly important in the event of a decrease in demand for coal concentrate from Russian metallurgical companies as, for instance, happened in 2009 due to the impact of the global financial and economic crisis on the Russian steel industry. The Groups status as a leading Russian coking coal concentrate producer has helped it to build a strong brand name in several markets in Asia and Europe, making it easier to sell its products in these markets. The Group has a large high-quality coking coal reserves and resources base According to IMC, as of 31 December 2011, the Group had proved and probable coking coal reserves of 1,314 million tonnes, measured resources of 1,809 million tonnes and coking coal inferred resources of 262 million tonnes. At the 2011 level of coal extraction, the Groups reserves are of sufficient size to enable the Group to extract coal for over ninety years. Moreover, the coal reserves and resources found in the coal field No. 1 and coal field No. 2 of the Raspadskaya-Koksovaya mine, to which RaspadskayaKoksovaya, a wholly-owned subsidiary of the Company, holds the licences, are classified under the Russian classification system as grade K (coking) and grade KO (coking semi-lean). The Groups management believes that these grades of coal would be classified as hard coking coal under the international classification system. As of 31 December 2011, the Groups proved and probable reserves, measured resources and inferred resources of coals of grades K (coking) and KO (coking semi-lean) were 136 million tonnes, 233 million tonnes and 142 million tonnes, respectively. Coking coals of grades K (coking) and KO (coking semi-lean) are not widely available in Russia and are in high demand both in Russia and abroad due to their lower volatility and high coking ability. Increased volume of extraction of such grade K (coking) and grade KO (coking semi-lean) coal is expected to help the Group to diversify its product range and better address the needs of its customers. The Group benefits from integrated business operations located at a single production complex The Groups management believes that the Group is one of very few large Russian coal mining companies that has integrated business operations located at a single production complex. The Groups mines and production facilities, which are located not far from the town of Mezhdurechensk in the Kemerovo region of Russia, include three underground mines, one open-pit mine and a coal concentrate preparation plant, as well as the Groups own coal and coal concentrate transportation network operated by the Companys subsidiary TPTU, which connects the Groups production complex to the federal railway network at the Mezhdurechensk railway station. In addition, the Groups sales and marketing is entirely managed by the Companys subsidiary Raspadskaya Coal Company, which is located at the Groups head office in Mezhdurechensk. Furthermore, the Companys subsidiaries OShPU, which is involved in shaft sinking at the Groups mines, and Montazhnik Raspadskoy, which supplies the Groups operations with ancillary equipment, are also located within the single production complex. Thus, the Groups integrated structure enables it to effectively monitor and control the entire value chain from the commencement of shaft-sinking when a new mine construction project is initiated to coal extraction and subsequent coal concentrate preparation and then to delivery of coal concentrate or raw coal from the Groups facilities to the federal railway network.

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The Groups integrated operations also allow it to significantly reduce the need for outsourcing to third parties work related to mine development, coal extraction or coal concentrate preparation, which allows the Group to reduce overall costs of its products. The Raspadskaya coal concentrate preparation plant commenced operations in the fourth quarter of 2005 when the first phase of its development project was completed after a two-year construction period. As a result, the Group became able to process coal of Russian grades Zh (fat), GZh (gas fat) and GZhO (gas fat semi-lean) extracted at the Raspadskaya mine, the MUK-96 mine and the Raspadsky open pit. Phase two of the development project was completed in 2008, increasing the plants annual design capacity to 10.5 million tonnes and actual production capacity to 15 million tonnes of raw coal processed. Based on the assumption of 7,200 hours of operation per year, which is being achieved by other new coal concentrate preparation plants in Kuzbass, the Groups management expects that the Raspadskaya coal concentrate preparation plant could achieve a maximum annual throughput of 17.3 million tonnes of raw coal. See Appendix AMineral Experts Report6.3 Plant Performance. Following the completion of phase two of the plants development project, the Group also became able to process coal of Russian grades K (coking) and KO (coking semi-lean). The construction and expansion of operations of the Raspadskaya coal concentrate preparation plant has allowed the Group to reduce and then eliminate the need for outsourcing of preparation of coal concentrate from raw coal extracted at the Groups mines, which allowed it to better monitor the quality of coal concentrate produced, provide customers with requested product characteristics and reduce overall costs. The Group has an experienced management team The Groups senior managers have extensive experience in the coal mining industry and have successfully transformed the Group into one of the largest coking coal mining companies in Russia. The current general director (CEO) of Raspadskaya Coal Company, the Groups management company, Gennady I. Kozovoy, assumed such position in April 2003 and had previously served as the Companys general director (CEO) from December 1993 through June 2003. He began working at the Raspadskaya mine in 1978. The current chairman of the Companys board of directors, Alexander S. Vagin, has served in such capacity since December 1993 and has served as first deputy general director of Raspadskaya Coal Company since March 2004. He began working at the Raspadskaya mine in 1983. Mr. Kozovoy and Mr. Vagin are supported by a competent team of senior managers with extensive experience in the coal mining industry. The Groups management believes that extensive experience of the Groups senior managers in the coal mining industry will help the Group to correctly identify and successfully implement its strategic objectives. Moreover, the Groups management believes that its mining engineers, both at a senior and middle level, have extensive industry experience and considers them to be among the best mining engineers in Russia. Strategy The Groups key strategies include the following: Complete the reconstruction programme for the Raspadskaya mine In May 2010, the Group experienced a major accident at its Raspadskaya mine. Two methane explosions on 8 and 9 May 2010 resulted in the death of 91 miners and rescuers. Coal mining at the Raspadskaya mine was completely suspended for several months. SeeOperationsCoal miningThe Raspadskaya mineAccident at the Raspadskaya mine in May 2010 for a more detailed description of this accident. The reconstruction of the Raspadskaya mine, which is being implemented in line with a series of reconstruction projects developed by Giprougol, one of the largest institutions in Russia involved in project development for enterprises in the coal mining industry, consists of four stages. The first stage involved a re-start of coal mining at face 4-9-21 bis (seam 9) with coal reserves of approximately 600 thousand tonnes. The Group recommenced coal extraction at face 4-9-21 bis on 16 December 2010 and has already completed the extraction of coal at this face. The second stage of the reconstruction project involves re-commencement of operations at three different faces (at coal seams 7-7a and 9) and work has already started in October 2011 at face 4-7-25 with coal reserves of approximately 1.4 million tonnes. The Group is currently involved in preparatory work at face 4-9-23, which is expected to allow it to restart work at this face in April 2012. Giprougol is continuing to develop project documentation for the third and fourth stages of reconstruction of the Raspadskaya mine, which would need to be approved by Glavgosekspertiza, the state agency responsible for approval of all new construction and reconstruction projects in the coal mining industry. See Risk FactorsRisks Related to the Groups BusinessThe pace of the reconstruction of the Raspadskaya mine has thus far been slower than initially expected by the Groups management and may

93

continue to fall further behind schedule in the future for a description of potential regulatory hurdles faced by the Group in connection with the reconstruction of the Raspadskaya mine. In 2011, the Group extracted 1.3 million tonnes of coal at the Raspadskaya mine. Increase coal extraction and reserves of coking coal In addition to the reconstruction of the Raspadskaya mine, the Groups management intends to increase annual extraction of coal at all of the other Groups mines. Under current plans for the development of the MUK-96 mine, the Raspadskaya-Koksovaya mine and the Raspadsky open pit, the output of these mines is expected to increase from 1.3 million tonnes, 0.9 million tonnes and 2.7 million tonnes, respectively, in 2011 to 3.0 million tonnes, 1.7 million tonnes and 3.5 million tonnes in 2015, bringing the expected aggregate output of all four mines to 16.7 million tonnes in that year. The increase in the coal output of these three mines is expected to be achieved principally due to significant capital expenditures, which are currently expected to reach 1.3 billion roubles in 2012 and 2.0 billion roubles in 2013 for the Raspadskaya-Koksovaya mine, 0.5 billion roubles in 2012 and 0.8 billion roubles in 2013 for the MUK-96 mine and 0.3 billion roubles in 2012 and 0.8 billion roubles in 2013 for the Raspadsky open pit. There can be no assurance, however, that the Group will be able to achieve such an increase in output of its mines. These planned coal extraction volumes for 2015 are based upon a number of assumptions and estimates that, while considered reasonable by the Groups management, are inherently subject to significant business, operational, economic, competitive and regulatory uncertainties and contingencies, many of which are beyond the Groups control, and upon assumptions in respect of future business decisions that are subject to change. No assurance can be given that the strategy will be effective or that the anticipated benefits from the strategy will be realised in the period up to and including 2015, or at all. Accordingly, the Group cannot provide any assurance that these planned coal extraction volumes for 2015 will be achieved. The actual output of each mine and the aggregate output of all four mines may vary materially from the currently planned coal extraction volumes. Important factors that could cause differences to arise include changing business or other market conditions, general economic conditions in Russia, China or other markets for the Groups products, and the Groups ability to respond to trends in the coal mining industry. Additional factors could cause actual results to differ materially. Prospective investors in the Notes are cautioned not to place undue reliance on this information and make their own projections about the Groups future operational performance on the basis of their own examination of the Group and the contents of this Prospectus. See Forward-Looking Statements and Risk Factors. Moreover, the Group seeks continued expansion of its coal reserves through the selective acquisition of licences, further geological exploration work and reclassification of its extensive resources into reserves. For example, based on the results of the auction conducted by Rosnedra on 21 March 2012, ZAO Razrez Raspadsky, a wholly-owned subsidiary of the Company, obtained a right to develop a Road coal field of the Raspadskoye bituminous coal deposit that has Category C1 reserves (under the Russian classification system) of 5.6 million tonnes. See Appendix AMineral Experts Report1.5.1 GKZ Categorisation of Reserves and Resources under JORC for the discussion of the Russian classification system and its differences with JORC. Further strengthen market position in Russia The Group is already one of the largest suppliers of coking coal in Russia (Source: CDU TEK). The Groups management intends to further improve the Groups market position by continuing to be known as a coal concentrate supplier of choice in Russia that is able to consistently satisfy its delivery obligations to major Russian customers and to benefit from high quality of its coal concentrate products. The Group has already signed framework long-term supply contracts with many of its existing customers, including OAO Evraz United West Siberian Iron and Steel Plant and OAO Evraz Nizhny Tagil Iron and Steel Plant, both of which are subsidiaries of Evraz (one of the Companys Controlling Shareholders), MMK, NLMK, Koks, Mechel and Urals Steel and has recently added significant new customers such as Stroyservice (the owner of Gubakhinsky coking plant) and Severstal. The Groups management believes that this policy allows the Group to (i) improve demand for the Groups coal concentrate products, (ii) more accurately estimate the maximum amount of coal concentrate and raw coal the Group can sell each year in the domestic market and (iii) maintain its long-term relationships with its largest domestic customers. The Group also plans to strengthen its domestic market position by steadily increasing the output of its Raspadskaya-Koksovaya mine, which produces coal of Russian grades K (coking) and KO (coking semi-lean), demand for which in Russia generally exceeds available supply. The Group was effectively required to sell all of its raw coal extracted at coal field No. 1 at the Raspadskaya-Koksovaya mine to Evraz

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in 2010 and 2011 and is also required to sell to Evraz coal concentrate produced from 1,080 thousand tonnes of raw coal extracted at the Raspadskaya-Koksovaya mine each year from 2012 to 2019 under the terms of a long-term agreement with Evraz related to the sale of ZAO Koksovaya to the Group in April 2010. The Group extracted 419 thousand tonnes and 945 thousand tonnes of coal at the RaspadskayaKoksovaya mine in 2010 and 2011, respectively. As the output of this mine exceeds 1,080 thousand tonnes in the future, sales of such coal to customers other than Evraz are expected to help the Group to diversify its product range and better address the needs of such customers. Increase the amount of coal concentrate sold outside Russia Prior to the accident at the Raspadskaya mine in May 2010, the Group was going through a shift in its exports strategy, with Asian markets becoming increasingly important for the Group. In 2010, Asian countries became the Groups largest export market for the first time in its history, with the proportion of the Asian markets in the Groups coal concentrate sales volume outside Russia reaching 72 per cent. in that year as compared to just 22 per cent. in 2009. After the accident at the Raspadskaya mine, the Group temporarily suspended all exports of its products. In October 2011, the Group resumed limited sales to Ukraine (accounting for approximately one per cent. of its total sales for 2011). As the Group has an established delivery infrastructure for sales to Asian countries (such as Japan, Republic of Korea and China) and Ukraine, the Groups management intends to increase the proportion of sales of coal concentrate outside Russia in the Groups total sales of coal concentrate and raw coal as the reconstruction of the Raspadskaya mine continues. Current plans envision increasing sales outside Russia to approximately 30 to 35 per cent. of the Groups total sales in the future. Asian markets, particularly Japan and Republic of Korea, are expected to be particularly significant for the Groups future export sales. The Chinese market, however, is adversely affected by a large volume of low priced Mongolian supplies of coking coal and is not currently viewed by the Groups management as one of the priority markets for exports expansion. For additional information on competition in the Chinese coking coal market, see Appendix AMineral Experts Report7.2.2 China. The exact geographic location and identity of customers outside Russia will be determined on the basis of several parameters, including terms of delivery, price levels, supply volumes, availability of premium payments and discounts, terms of use of port facilities and capacity of border-crossings and railways. Maintain financial discipline and focus on profitability The Groups management intends to continue to maintain the Groups cost leadership in respect of the Russian coking coal market in terms of cash costs of coal extraction and coal concentrate preparation. In particular, the Groups management currently expects that as coal extraction at the Raspadskaya mine increases due to progress in the reconstruction of this mine after the May 2010 accident, the cash cost of coal concentrate production per tonne of coal concentrate produced by the Group will decrease in rouble terms. In addition, the Group follows a policy according to which all investment decisions must be aligned with the goal of maximising returns on the capital employed.

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Organisational Structure of the Group The following chart sets forth the Groups organisational structure as of the date of this Prospectus. The chart provides information in respect of the Companys principal subsidiaries.
OAO Raspadskaya

100% 100% OAO Mezhdurechenskaya Coal Company-96 99% ZAO Ra zrez Raspadsky 1% 99% 1% ZAO Preparation Plant Ra spa dskaya

100% OOO Raspadskiy Ugol

100% ZAO Ra spa dskaya Coal Company 58.6% OAO Tomusinskoye Cargo Handling Unit

100%

OOO Olzherasskoye Shaft-Sinking Unit

100%

OOO RaspadskayaEnergo

ZAO Raspadska yaKoksovaya

100%

OOO Raspadskaya Logistic Company

100%

26MAR201212420206
The activities of the Company and the principal subsidiaries of the Company are set out in the table below.
Name of entity Summary of primary activities

OOO Montazhnik Raspadskoy

OAO Raspadskaya . . . . . . . . . . . . . . . . . OAO Mezhdurechenskaya Coal Company (MUK-96) . . . . . . . . . . . . . . . . . . . . . ZAO Razrez Raspadsky . . . . . . . . . . . . . ZAO Raspadskaya-Koksovaya . . . . . . . . ZAO Preparation Plant Raspadskaya . . OOO Raspadskiy Ugol . . . . . . . . . . . . . ZAO Raspadskaya Coal Company . . . . . OAO Tomusinskoye Cargo Handling Unit . . . . . . . . . . . . . . . . . . . . . . . . .

Extraction of coking coal Extraction of coking coal Extraction of coking coal Extraction of coking coal Preparation of coal concentrate Execution of coal concentrate and raw coal supply contracts Overall management of the Groups operations Coal and coal concentrate transportation between the Groups mines, coal concentrate preparation plant and storage facilities, as well as to the Mezhdurechensk railway station Construction of underground mine openings and sinking of vertical mine shafts Electric and heat energy wholesale trade Wholesale trade in fuel Production of roof bolting, metal grid and other spare parts for mining operations

OOO Olzherasskoe Shaft-Sinking Unit . . OOO Raspadskaya-Energo . . . . . . . . . . . OOO Raspadskaya Logistic Company . . . OOO Montazhnik Raspadskoy . . . . . . . .

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Operations Coal mining The following table provides the description of coking coal extraction levels and operating characteristics of the Groups mines.
Raspadskaya mine MUK-96 RaspadskayaKoksovaya mine(1) Raspadsky open pit

Russian grade(s) of coking coal . . . . Volume of coking coal production in 2011 (in thousands of tonnes) . . . . Volume of coking coal production in 2010 (in thousands of tonnes) . . . . Volume of coking coal production in 2009 (in thousands of tonnes) . . . . Number of employees as of 31 December 2011 . . . . . . . . . . . .
(1)

... ... ... ... ...

Zh, GZh, GZhO 1,253 3,190 6,856 3,566

GZhO 1,309 1,830 1,783 938

K, KO 945 419 22 1,212

Zh, GZh, GZhO 2,744 1,721 1,899 668

Includes the volumes produced at the Koksovaya mine from 28 April 2010 to 1 February 2011.

Coking coal reserves and resources The international consulting firm IMC conducted an independent review of the coking coal reserves and resources at the Groups mines in 2012. This review included site visits to the mines to collect data and review the operations. Subsequent to the site visits, IMC reviewed the available information and conducted economic evaluations. Moreover, IMC reviewed the methodologies and data used by the Group and used to develop the Russian reserve estimates. Russia has a long-established system for reserve and resource reporting, which is regulated by the Ministry of Natural Resources. The primary difference between the Russian methodologies and international methodologies is that Russian methodologies rely on geometrical methods to determine reserves, as compared to international methodologies that use sampling and extrapolation techniques. While a direct comparison between international and Russian reporting methodologies is difficult because each is founded on different principles, it is often the case that Category A and Category B Russian reserves correlate to proved reserves and Category C1 Russian reserves partially relate to probable reserves. However, these relationships may vary among deposits and at different times for the same deposits. For differences between international reporting methodologies and Russian methodologies, see the section entitled Regulatory MattersReserve Reporting Methodologies included elsewhere in this Prospectus. Based upon its review, IMC prepared a report (the Mineral Experts Report) on the coal assets of the Group as at 31 December 2011 in accordance with the criteria for internationally recognised reserve and resource categories of the Australasian Code for Reporting Mineral Resources and Ore Reserves (2004) published by the Joint Ore Reserves Committee (JORC) of the Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and the Minerals Council of Australia (the JORC Code). See Appendix A. The following table sets forth the Groups proved and probable reserves and measured and indicated resources at each of the Groups mines and in the aggregate for all four mines as of 31 December 2011 presented in accordance with the JORC Code.
Raspadskaya mine RaspadskayaMUK-96 mine Koksovaya mine (in millions of tonnes) Raspadsky open pit Total

Proved reserves . . . . . . . . . . . . . . . . . . Probable reserves . . . . . . . . . . . . . . . . Proved and probable reserves . . . . . . . . Measured resources . . . . . . . . . . . . . . . Indicated resources . . . . . . . . . . . . . . . Measured and indicated resources . . . .
Source: MER1.5.2 Reserves and Resources Statement.

185.1 676.4 861.6 1,137.3 0 1,137.3

60.6 136.0 196.6 302.4 0 302.4

54.7 81.5 136.2 232.5 0 232.5

82.5 37.2 119.7 136.9 0 136.9

382.9 931.2 1,314.1 1,809.1 0 1,809.1

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In addition to reserves and resources shown in the table above, the Group has significant inferred resources at the Raspadskaya mine (119.6 million tonnes) and the Raspadskaya-Koksovaya mine (142.4 million tonnes, and together with the Raspadskaya mine, 262 million tonnes), which could be upgraded to classified (measured or indicated) resources with appropriate exploration and supporting economic mine plans. The Groups review of its coking coal reserves allowed the Groups management to come to a conclusion that such reserves are sufficient to fulfil the Groups current 20-year coal mining plan. Nevertheless, the Groups management plans to explore opportunities to diversify and expand the Groups reserves both through the acquisition of new licences and the extension of operations at its current facilities. For example, based on the results of the auction conducted by the Federal Agency for Subsoil Use (Rosnedra) on 21 March 2012, ZAO Razrez Raspadsky, a wholly-owned subsidiary of the Company, obtained a right to develop a Road coal field of the Raspadskoye bituminous coal deposit that has Category C1 reserves (under the Russian classification system) of 5.6 million tonnes. See Appendix A Mineral Experts Report1.5.1 GKZ Categorisation of Reserves and Resources under JORC for the discussion of the Russian classification system and its differences with JORC. Coal mining techniques There are two main types of coal mining methods used by the Group: underground mining (at the Raspadskaya, MUK-96 and Raspadskaya-Koksovaya mines) and open-pit mining (at the Raspadsky open pit). In respect of underground coal mining, the Group uses two different types of coal extraction methodslongwall mining, which is used at the Raspadskaya, MUK-96 and Raspadskaya-Koksovaya mines, and room and pillar mining, which will be used at the Raspadskaya-Koksovaya mine. In longwall mining, roadheaders are used to create long rectangular blocks of coal by excavating passageways around their perimeters. Drilling with subsequent blasting is used for dealing with hard rock formations, which requires the use of modern drilling equipment and loading machinery. Coal cutting in longwall mining is performed by a longwall shearer moving back and forth along the coal face and working under the steel canopy of hydraulic, movable roof supports. The coal cut by the shearer spills into an armoured chain conveyor running along the entire length of the coal face. This conveyor dumps the coal onto belt conveyors for transportation out of the mine. As the shearer advances, roof supports are moved closer to the newly cut face to prop up the exposed roof. The roof is allowed to collapse behind the supports as they are moved towards the coal face. Mining continues in this manner until the entire panel of coal is removed. Ultimate seam recovery of in-place reserves using longwall mining is generally much higher than the recovery rate under the room-and-pillar coal mining method, in which coal deposits are mined by cutting a network of rooms into coal seam using continuous miners and leaving behind pillars of coal to support the roof of the mine. As the coal is cut, the continuous miner simultaneously loads it onto a shuttle car that is used to transport the coal to a conveyor belt for transfer to the surface. The Raspadskaya mine The Raspadskaya mine is located in the south-eastern part of Kuzbass, in the Mezhdurechensk district of the Kemerovo region of the Russian Federation. It is located 16 kilometres to the north of the town of Mezhdurechensk with the population of slightly over 100,000 people. The mine is linked to Mezhdurechensk by a railway and paved automobile road. Mezhdurechensk is located on the AbakanNovokuznetsk railway, by which the Groups coal concentrate and raw coal are shipped to its customers.

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The Raspadskaya mine consists of four licence areas with licence expiration dates ranging from 2014 to 2034. The following table sets forth certain information on these four licences.
Licence holder Series, number and type Licence area Expiration date Mining method

Company . . . . . .

KEM 13781 TE (coal mining) KEM 13782 TE (coal exploration and mining) KEM 01464 TE (coal exploration and mining) KEM 01468 TR (geological survey, exploration and mining of coal)

Raspadskoye bituminous coal deposit Raspadskaya-2 mine site of Raspadskoye bituminous coal deposit Raspadsky-4 mine site of Raspadskoye bituminous coal deposit Raspadskaya-3 mine site of Raspadskoye bituminous coal deposit

1 March 2014

Underground and open pit Underground

Company . . . . . .

15 November 2023

Company . . . . . .

25 November 2029

Underground and open pit

Company . . . . . .

31 December 2034

Underground

The principal licence held by the Company for the Raspadskaya mine (KEM 13781 TE) grants the Company the right to mine seams 1 to 14 in an area of 84.3 square kilometres. The lower boundary specified in the licence is the floor of seam 1. Historically, coal mining at the Raspadskaya mine, which commenced operations in 1973, was carried out in the area covered by this licence. The total proved and probable reserves of coking coal in the area covered by this licence amounted to 403.0 million tonnes as of 31 December 2011. The KEM 13781 TE licence stipulates maximum limits on annual coal extraction. From 2006 to 2012, such maximum limit was set at 7.5 million tonnes. In the past, the Group occasionally exceeded this maximum limit. For instance, it extracted 8.9 million tonnes of coal in 2008. The Company provided the required information about its extraction levels to the relevant regulatory authorities and has not been sanctioned for exceeding the 7.5 million tonnes limit. In October 2006, the Company purchased the licence for the Raspadskaya-2 mine site (KEM 13782 TE) granting it the right to mine seams 3-3a to 10 in an area of approximately 13 by 2.5 kilometres, which is adjacent to the area covered by licence KEM 13781 TE, to a depth of 250 metres below sea level. Coal seams above seam 10 are not included in the licence. The Company commenced coal mining in the area covered by this licence in 1996. The total proved and probable reserves of coking coal in the area covered by this licence amounted to 213.9 million tonnes as of 31 December 2011. In the autumn of 2009, the Company acquired the licence for the Raspadsky-4 mine site (KEM 01464 TE), which grants it the right to extract coal in an area adjacent to the area covered by licence KEM 13781 TE, with total proved and probable reserves of 93.9 million tonnes as of 31 December 2011. In 2010, the Groups management decided to accelerate the commencement of coal mining operations in the areas covered by the new licences, including a part of the Raspadsky-4 mine site area suitable for open pit mining. Open pit mining at this site is currently expected to commence in 2013. In January 2010, the Company acquired the licence for the Raspadskaya-3 mine site (KEM 01468 TR), which grants it the right to extract coal in an area adjacent to the area covered by the licence for the Raspadskaya-3 mine site, with total proved and probable reserves of 150.7 million tonnes as of 31 December 2011. The exploration work at the Raspadskaya-3 mine site is expected to be completed by the end of June 2013. Following completion of the exploration work, the Group will prepare a detailed production plan for this area of the Raspadskaya mine based on the exploration results. The coal produced from the Raspadskaya mine is classified under the Russian classification as grades Zh (fat), GZh (gas fat) and GZhO (gas fat semi-lean). These grades of coal are in demand, being easily coked coals with high volatile content, which can be blended with coking coal with low volatile content to make metallurgical coke. The coal also has low sulphur, phosphorus and inherent ash content. The quality may vary slightly between seams, but, in general, the coal meets the market requirements to such types of coal.

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The design for the construction of the Raspadskaya mine was initially developed in 1960 with the design capacity of 4.8 million tonnes of coal per year. The design project was re-done in 1964 and again in 1973, and the production capacity was revised upward to 7.5 million tonnes of coal per year. Coal mining at the Raspadskaya mine commenced in 1973. Prior to the accident in May 2010, the annual amount of coal extracted at this mine fluctuated between 4.4 million tonnes and 8.9 million tonnes, with the maximum output level reached in 2007. The mine uses the block system of development. The whole coal field covered by the existing licences is divided into four blocksNos. 5, 4, 3 and 2. Due to the complex tectonic pattern, the existing design project does not propose to mine coal deposit in block 2. In addition, due to the series of disjunctive dislocations, a part of the reserves in block 3 is also excluded from mining under the existing design project. Seams in each block are accessed through vertical shafts providing fresh air supply and access for people and materials. The shafts are linked by lateral tunnels equipped with belt conveyors. In addition to vertical shafts and lateral tunnels, the main underground facilities of the Raspadskaya mine include inclined shafts for coal transportation and inclined shaft access tunnels. The Raspadskaya mine has four vertical shafts. The block 4 auxiliary shaft is 250 metres deep and has a diameter of 8.5 metres. This shaft is designed to deliver people and materials to the mine in a cage hoist. The block 4 ventilation shaft is 520 metres deep and has a diameter of 7.0 metres. The shaft is also equipped with a cage hoist to deliver people and supplies. The block 3 ventilation shaft is 268 metres deep and has a diameter of 8.5 metres. It provides access to coal seams in the western section of the coal field. The block 5 ventilation shaft is 214 metres deep and has a diameter of 8.5 metres. It serves the eastern sections of the mine. All vertical shafts, except the block 3 shaft, are used as air intakes for forced ventilation. Each shaft has a fan with a design capacity of 24,900 cubic metres of air per minute. The Group is currently constructing a new vertical shaft No. 6 to further improve the ventilation scheme of the Raspadskaya mine. The current design plan for this shaft involves sinking the shaft to a depth of 580 metres, to the level of 210 metres below sea level. The Raspadskaya mine has two inclined shafts for coal transportation. Each of these shafts is 1,650 metres long and is equipped with a 1,500 metre long conveyor. The first conveyor delivers coal from the mine directly onto the 300 metre long transfer conveyor, which transports it to the open storage yard of the Raspadskaya coal concentrate preparation plant. The second conveyor in the eastern inclined shaft can transport coal from the mine either to silos bunkers, or to the 300 metre long conveyor feeding raw coal to the Raspadskaya coal concentrate preparation plant. The existing conveyor system also makes it possible to deliver coal from the Raspadskaya mine to the nearby Kuzbass coal concentrate preparation plant. The Groups management plans to replace the conveyor in the eastern inclined shaft with a new conveyor with an increased capacity of 3,000 tonnes of coal per hour capacity in the future. Inclined shaft access tunnels provide access to each of the five seams on which mining operations are currently conducted or are expected to be conducted in the future. They are used for exhaust air and, in some cases, for transporting large equipment such as roof supports and imported shearers. In total, the Raspadskaya mine has about thirty inclined shaft access tunnels opening to the surface. In most cases, these sites are fenced off and access to them is closed. Coal at the Raspadskaya mine is extracted using the longwall mining method. For a description of this coal mining method, see OperationsCoal miningCoal mining techniques. Prior to the major accident in May 2010, coal at the Raspadskaya mine was typically extracted from five longwall faces equipped with mechanised complexes produced by various domestic and foreign manufacturers, including KM142, KM145, JOY1, JOY2, JOY3 and BUCYRUS. Accident at the Raspadskaya mine in May 2010. The first methane gas explosion at the Raspadskaya mine took place at 23:40 pm local time on 8 May 2010. Following the explosion, a mine dispatcher put in action the emergency response plan and requested a rescue unit to come to the mine. At the time of arrival of the mine rescue teams, the exact place of the accident was unknown. There was no telephone communication with the mining sites at seams 6-6a and 7-7a, gas monitoring lines were destroyed and mine ventilation was disrupted. The first mine rescue teams were sent into the mine to provide assistance to miners coming out to the surface and to investigate the situation in the mine. The second methane gas explosion took place at 3:55 am local time on 9 May 2010. This explosion affected mine workers who had not come out of the mine by that time and nine teams of mine rescuers (55 people) and completely destroyed the building on top of the block 4 ventilation shaft and partially damaged the buildings on top of

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the block 4 auxiliary shaft and block 5 ventilation shaft. The total death toll from these two explosions was 91 miners and rescuers. Search and rescue operations were suspended after the second explosion and were recommenced 22 hours later, but the destruction caused by the explosions, including damage to the drainage system that caused inundation of certain areas, significantly slowed down rescue operations. Over the next several days, rescuers found several fires caused by the explosions, not all of which could be extinguished due to damage to necessary equipment, and several dangerous concentrations of methane. As rescuers were unable to deal effectively with the spread of fires due to dangerous concentrations of methane in affected areas, the accident response centre decided to flood the mine to the level of 26 metres below sea level using the redirected water from local river Glukhaya on 20 May 2010. During the period from 20 May to 24 May 2010, the Raspadskaya mine was flooded with over 2 million cubic metres of water, which helped to extinguish most fires in the mine. Some fires, however, spread to the areas of the mine that were located above the 26 metres below sea level. Accordingly, the next stage of the reconstruction of the mine was based on sealing the areas affected by such fires through the construction of a large number of blastresistant walls sealing the affected areas from the rest of the mine, as well as, among other things, nitrogen injections to significantly reduce the level of oxygen in the air in those areas, in which fires were still burning, thus preventing further spreading of such fires and helping to extinguish them. Reconstruction of the Raspadskaya mine. The construction of blast-resistant walls to seal the area of the mine affected by the fires was initially complicated by lack of electric power, water supply and access for vehicles delivering equipment and materials, which had to be brought in manually by rescue units and the mines employees. As pumping out of water used to extinguish the fires commenced, new blast resistant walls had to be constructed to keep the areas affected by the fires sealed. As of 24 January 2012, all the water above the 210 metres below sea level has been pumped out of the mine and the remaining water (total volume of 414 thousand cubic metres) is localised in several areas not connected to each other. The sealing of the area of the mine still affected by the fires has also been completed. In total, as of 24 January 2012, 196 blast-resistant walls were constructed around the affected area. For the first time in the history of post-accident mine reconstructions, a long distance method of constructing blast-resistant walls without the presence of any people in the construction area was used, with concrete for the construction of such walls delivered through the 300 to 400 metres-deep shafts drilled from the surface. In total, 15 such walls (of the 196 in total blast-resistant walls constructed) were constructed using this new technique. To control the content of the air in the mine, reduce dangerous concentrations of gases in the sealed area of the mine and extinguish these fires from the surface, the Group drilled a total of 80 new shafts by 24 January 2012 and injected a large volume of nitrogen and inert foam into the areas of the mine affected by the fires. Drilling of various types of shafts leading to the sealed area of the mine and the periodic injections of nitrogen and inert foam into this area are still continuing. Further work on the reconstruction of the mine targets two principal objectives: (i) reducing the size of the sealed area of the mine in which fires continue through the construction of new blast-resistant walls and (ii) implementing measures necessary to extinguish the fires in the sealed area of the mine (such as drilling of new shafts leading to such sealed area and further injections of nitrogen and inert foam into this area) and otherwise eliminate all dangerous consequences of the accident in such area. The complete reconstruction of the Raspadskaya mine, which is being implemented in line with a series of reconstruction projects developed by Giprougol, consists of four stages. The first stage involved a re-start of coal mining at face 4-9-21 bis (seam 9) with coal reserves of approximately 600 thousand tonnes. The Group recommenced coal extraction at face 4-9-21 bis on 16 December 2010 and has already completed the extraction of coal at this face. The second stage of the reconstruction project involves re-commencement of operations at three different faces (at coal seams 7-7a and 9) and work has already started in October 2011 at face 4-7-25 with coal reserves of approximately 1.4 million tonnes. The Group is currently involved in preparatory work at face 4-9-23, which is expected to allow it to restart work at this face in April 2012. Giprougol is continuing to develop project documentation for the third and fourth stages of reconstruction of the Raspadskaya mine, which would need to be approved by Glavgosexpertiza, the state agency responsible for approval of all new construction and reconstruction projects in the coal mining industry. In 2011, the Group extracted 1.3 million tonnes of coal at the Raspadskaya mine. For a description of safety initiatives recently introduced at the Raspadskaya mine, see Appendix AMineral Experts Report1.8 Health and Safety.

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The MUK-96 mine The MUK-96 mine is located in the same area of the Kemerovo region as the Raspadskaya mine and the two mines are adjacent to each other. Similar to the Raspadskaya mine, the MUK-96 mine is linked to Mezhdurechensk by a railway and paved automobile road. MUK-96 holds two mining licences: its principal mining licence for the Gorny site and another licence that gives it rights to the upper coal seams of the Raspadskaya-2 mine site of the Raspadskaya mine. The following table sets forth certain information on these two licences.
Licence holder Series, number and type Licence area Expiration date Mining method

MUK-96 . . . .

KEM 00635 TE (coal mining)

Gorny site of Raspadskoye bituminous coal deposit Raspadskaya-2 upper mine area of Raspadskoye bituminous coal deposit

1 December 2019

Underground

MUK-96 . . . .

KEM 13024 TE (coal exploration and mining)

20 March 2025

Underground and open pit

The licence held by MUK-96 for the Gorny site (KEM 00635 TE) grants it the right to extract coal from seams 15 to 19 of such site. The lower boundary specified in the licence is the floor of seam 15, at a depth of 190 metres above sea level. The area covered by this licence is 5.6 square kilometres. The total proved and probable reserves of coking coal in the area covered by this licence amounted to 11.2 million tonnes as of 31 December 2011. The annual amount of coal extraction under this licence may not be less than 500 thousand tonnes. The licence for the Raspadskaya-2 upper mine area (KEM 13024 TE) grants MUK-96 the right to extract coal from seams 11 to 19, to a depth of 220 metres below sea level. Coal seams below seam 11 are not included in the licence. The area covered by this licence is 25.4 square kilometres. The total proved and probable reserves of coking coal in the area covered by this licence amounted to 185.4 million tonnes as of 31 December 2011. Coal extracted at the MUK-96 mine is of grade GZhO (gas fat semi-lean) and can be used in the blend for the layered coking process. Quality varies slightly between seams, but all seam meet the market requirements for this type of coal. The coal extracted at the MUK-96 mine is low sulphur, low phosphorus and has a low inherent ash content. The thickness of coal in seam 15, from which all coal extracted at the MUK-96 mine currently comes, varies between 2.8 and 3.6 metres, with an average thickness of 3.3 metres. The thickness of coal seam 11, which is currently being developed at the Raspadskaya-2 upper mine area, is slightly lower, ranging between 2.3 and 3.4 metres, with an average thickness of 2.8 metres. OAO Mezhdurechenskaya Coal Company-96 (MUK-96) was set up in 1996 for the development of the Gorny site. The mine area boundaries covered by the licence for the Gorny site were approved in August 2004, while the mine area boundaries covered by the licence for the Raspadskaya-2 upper mine area were approved in February 2008. The total area covered by the two licences is 30.0 square kilometres. Only seams 15 through 19 are of interest in the Gorny site licence area. In the extension licence area (Raspadskaya-2 upper mining area), seams 11 through 19 are targeted for mining. The mine at the Gorny site has been operating for approximately 13 years and is at present extracting coal in its first seam, seam 15. This seam was chosen as the first seam to work on rather than the higher seams because the area available to coal mining in seam 15 was much greater than in the other seams. Seam 15 is accessed through the ventilation inclined shaft 5-15, ventilation adit 5-15, conveyor adit 5-15 and main adit 5-15. Transportation of materials and equipment along the roadways inside the mine and transportation of people to and from the operation site are by use of monorail all-purpose track by SCHARF and diesel locomotives. The use of monorail track allows re-assembly of underground mining machinery within short periods of time. Coal of seam 15 is extracted using either MKT longwall equipment set, comprising JOY 4LS20 shearer and Anzhera-34 armoured flexible conveyor (AFC) or, within the longwall faces with low coal reserves, using 4-KM130 longwall equipment set, comprising KShE shearer and KSYu AFC. Coal is

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transported from the mine to the surface by conveyors. On the surface, coal is unloaded to an outdoor coal storage yard with the 20,000 tonnes capacity. From the storage site, the coal is delivered to the truck pickup site by another conveyor and then transported to the Raspadskaya coal concentrate preparation plant by Belaz-7540 trucks with the loading capacity of 30 tonnes. Seam 11, at which coal mining is expected to start in 2013, is accessed by a western transport inclined shaft 4-11 No. 1, conveyor inclined shaft 4-11 No. 1 and eastern transport inclined shaft 4-11 No. 1 from the mining site of the Raspadskaya mine. In the long term, upon completion of coal mining at seam No. 15 at the Gorny site, coal mining operations are expected to be moved to seams 17 and 19. The Raspadskaya-Koksovaya mine The Raspadskaya-Koksovaya mine is located in the same area of the Kemerovo region as the Raspadskaya mine and the two mines are adjacent to each other. The Raspadskaya-Koksovaya mine is linked to Mezhdurechensk by a railway and paved automobile road. Access to the mine is available from the area of the adjacent former Shevyakova mine, and the Group uses the existing buildings and infrastructure of the Shevyakova mine for its operations at the Raspadskaya-Koksovaya mine. ZAO Raspadskaya-Koksovaya, which was established in 2003, holds two mining licencesto coal fields Nos. 1 and 2. The following table sets forth certain information on these two licences.
Licence holder Series, number and type Licence area Expiration date Mining method

Raspadskaya-Koksovaya . . . . . . . . Raspadskaya-Koksovaya . . . . . . . .

KEM 15030 TE KEM 11578 TE

Coal field No. 1 Coal field No. 2

1 July 2053 1 July 2057

Underground Underground

The licence held by Raspadskaya-Koksovaya for coal field No. 1 (KEM 15030 TE) grants it the right to extract coal from seams III, IV, IV-V, V, VI B.. and VI H.. of such site. The area covered by this licence is 10.0 square kilometres. The total proved and probable reserves of coking coal in the area covered by this licence amounted to 108.1 million tonnes as of 31 December 2011. The licence held by Raspadskaya-Koksovaya for coal field No. 2 (KEM 11578 TE) grants it the right to extract coal from four mineable seams, which are III, IV-V, VI B.. and VI H.. The lower boundary specified in the licence is the floor of seam VI at a depth of 540 metres below sea level. The area covered by this licence is 8.2 square kilometres. The total proved and probable reserves of coking coal in the area covered by this licence amounted to 28.1 million tonnes as of 31 December 2011. Licence to coal field No.1 (Koksovaya mine) initially belonged to ZAO Koksovaya owned by Evraz (one of the Groups Controlling Shareholders). In April 2010, the Group acquired a 100 per cent. ownership interest in ZAO Koksovaya from Evraz. Koksovaya mine was developing the same coal seams as the Groups Raspadskaya-Koksovaya mine because both mines are located in the neighbouring subsoil areas of the Olzherasskoe coalfield in Mezhdurechensk. Development of the Koksovaya mine cannot be considered separately from the development of the Raspadskaya-Koksovaya mine because both subsoil areas of the integrated coal deposit will be developed under a single plan that implies a consecutive mining of upper seams ready for extraction by using the infrastructure of the Raspadskaya-Koksovaya mine. Reflecting this interdependence, ZAO Koksovaya was merged with ZAO Raspadskaya-Koksovaya on 1 February 2011. In connection with the acquisition of ZAO Koksovaya from Evraz in April 2010, the Group entered into a long-term agreement with Evraz. Under the terms of this agreement, the Group was effectively required to sell all of its raw coal extracted at coal field No. 1 at the Raspadskaya-Koksovaya mine to Evraz in 2010 and 2011 and is also required to sell to Evraz coal concentrate produced from 1,080 thousand tonnes of raw coal extracted at the Raspadskaya-Koksovaya mine each year from 2012 to 2019. Coal extraction at the Koksovaya and Raspadskaya-Koksovaya mines amounted to 419 thousand tonnes in 2010 and 945 thousand tonnes in 2011. Coal field No. 1 produces coal of Russian grades K (coking) and KO (coking semi-lean). Coal in seam III is of grade K (coking), while coal in seams IV-V, IV, V, VI B.M., and VI H.M. is of grade KO (coking semi-lean). Coking coals of grades K (coking) and KO (coking semi-lean) are not widely available in Russia and are in high demand both in Russia and outside Russia due to their lower volatility and high coking ability. The coal extracted at coal field No. 1 has low sulphur and low phosphorus content. The thickness of coal in seam IV-V at the coal field No. 1, the only seam currently being mined at coal field

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No. 1, varies between 8.2 and 12.0 metres, with an average thickness of 10.7 metres. The thickness of coal seam IV at coal field No. 1, one of the two seams which are currently being developed, is significantly lower, ranging between 1.3 and 3.0 metres, with an average thickness of 2.0 metres. The thickness of coal seam V at coal field No. 1, the other seam that is currently being developed, ranges between 5.0 and 7.0 metres, with an average thickness of 6.5 metres. At coal field No. 2, the Groups management plans to extract coal from three seams (III, IV-V and VI) in the future, with seam VI to be developed first, followed by seam III and then by seam IV-V. Operations at coal field No. 1 are accessed by the main and auxiliary adits, conveyor incline shaft No. 1 and ventilation shaft. The main adit is used to transfer all coal extracted in the mine by belt conveyor to the conveyor inclined shaft No. 1. The conveyor inclined shaft No. 1 is used for transferring coal from the mine to the coal stockyard on the surface. The auxiliary adit is currently used for transporting people, materials and equipment in rail cars driven by electric locomotives on rail tracks. Currently, coal mining at coal field No. 1 is conducted at longwall face 0-4-4 bis, which contains 740 thousand tonnes of reserves. Access to development operations at coal field No. 2 is by ventilation drifts Nos. 1 and 2 and a transportation drift. The ventilation drift No. 1 is 1,812 metres long and is designated for fresh air delivery to the mine. The ventilation drift No. 2 is 1,826 metres long and is designated for return of exhaust air to the surface, transportation of people and materials and emergency exit. The transportation drift is designated for transportation of coal excavated in the mine to the surface by conveyors. The Raspadsky open pit The Raspadsky open pit is located in the same area of the Kemerovo region as the Raspadskaya mine and the MUK-96 mine. The Raspadsky open pit is linked to Mezhdurechensk by a paved automobile road. ZAO Razrez Raspadsky holds mining licences to the Glukhovsky open pit and the Raspadsky IX-XI mine site. The following table sets forth certain information on these two licences.
Licence holder Series, number and type Licence area Expiration date Mining method

Razrez Raspadsky . . . . . Razrez Raspadsky . . . . .

KEM 13446 TE (coal mining) KEM 13873 TE (coal exploration and mining)

Glukhovsky open pit Raspadsky IX-XI mine site

20 December 2025 30 November 2026

Open-pit Open-pit

The licence held by Razrez Raspadsky for the Glukhovsky open pit (KEM 13446 TE) grants it the right to extract coal from coal seams 1 through 13 in an area of 1.7 square kilometres. The lower boundary specified in the licence is at a depth of 280 metres above sea level. The total proved and probable reserves of coking coal in the area covered by this licence amounted to 13.9 million tonnes as of 31 December 2011. The licence held by Razrez Raspadsky for the Raspadsky IX-XI site (KEM 13873 TE) grants it the right to extract coal from an area of 7.7 square kilometres. The total proved and probable reserves of coking coal in the area covered by this licence amounted to 105.8 million tonnes as of 31 December 2011. Moreover, the Group has three other licences which allow for coal extraction using open-pit mining: (i) the licence for the Raspadsky-4 mine site (KEM 01464 TE) held by the Company, which covers the Raspadsky-4 area of the Raspadskaya mine adjacent to the Glukhovsky open pit; and (ii) the licence for the Raspadskaya-2 upper mine area (KEM 13024 TE) held by MUK-96. Coal found within the areas covered by the two licences held by Razrez Raspadsky is classified under the Russian classification system as grades GZh (gas fat), GZhO (gas fat semi-lean) and Zh (fat). Razrez Raspadsky currently extracts coal only at the Glukhovsky open pit. The main types of excavation and loading equipment employed at the Glukhovsky open pit are hydraulic excavators, mining trucks, bulldozers, graders and drilling rigs. In addition, the Groups management believes that Razrez Raspadsky was the first company in Russia that started to apply the advanced unmanned method of coal recovery using the DSDS manufactured by SHM, and in particular a highwall miner. The DSDS is essentially a modification of the underground room and pillar mining system, but differs from such conventional mining technique in that the seam must first be uncovered on the surface or in the wall of an open pit to expose the coal seams to the operating module of the system for unmanned underground coal

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recovery, while the control board, power units, hydraulic systems and other mechanisms of the DSDS remain on the surface. The DSDS extracts the coal from specific stratified layers by way of a highwall miner driven by remote control. It is a completely self-contained mining system that enables fully mechanised unmanned underground development of open pit seams without the need for workers in breakage faces. The DSDS can mine coal seams ranging in thickness from 1.0 to 1.5 metres and up to depths of 300 metres. The Raspadsky IX-XI mine site is located next to the Glukhovsky open pit. The Groups management currently expects coal mining in this area to commence after the depletion of reserves at the Glukhovsky open pit. The Raspadsky IX-XI mine site is expected to be developed and mined block-by-block, with three blocks of approximately equal length. The average length of each block is approximately 4.3 kilometres, while the width of these blocks varies from 800 metres to 1.5 kilometres. The area in which the Raspadsky IX-XI mine site is located is characterised by a large number of coal mines in operation, which resulted in only limited space available for outside dump location. Accordingly, when open-pit mining at the Glukhovsky open pit and the Raspadsky-4 area of the Raspadskaya mine is completed, the mined out space at these two locations is expected to be used for placing overburden from the open pit at the Raspadsky IX-XI site. Production of coal concentrate The Companys wholly-owned subsidiary, Raspadskaya Preparation Plant, operates the Groups coal concentrate preparation plant, which commenced operations in the fourth quarter of 2005 after the Group completed the first phase of its construction after a two-year construction period. The design capacity of the coal concentrate preparation plant after the completion of the first phase of construction was 7.5 million tonnes of raw coal per year. After the completion of the second phase of construction in 2009, the Raspadskaya coal concentrate preparation plants design capacity was increased to 10.5 million tonnes of raw coal per year, while its actual production capacity increased to 15 million tonnes of raw coal per year. Based on the assumption of 7,200 hours of operation per year, which is being achieved by other new coal concentrate preparation plants in Kuzbass, the Groups management expects that the Raspadskaya coal concentrate preparation plant could achieve a maximum annual throughput of 17.3 million tonnes of raw coal. See Appendix AMineral Experts Report6.3 Plant Performance. A technological section that can process not only coal of Russian grades Zh (fat), GZh (gas fat) and GZhO (gas fat semi-lean), but also coal of Russian grades K (coking) and KO (coking semi-lean) commenced operations in 2008, making the Group able to process coal extracted at its Raspadskaya-Koksovaya mine. The coal concentrate preparation plant consists of three processing sections, each of which includes two processing streams with the throughput capacity of approximately 400 tonnes per hour per stream. The most productive period of the coal concentrate preparation plant operation was from July 2009 to April 2010. In 10 months, the plant processed 10,422 thousand tonnes of raw coal. After the accident at the Raspadskaya mine in May 2010, operations at section three of coal concentrate preparation plant were suspended and all processing of raw coal was done only at sections one and two. Supplies of raw coal All coal extracted at the Groups Raspadskaya, MUK-96 and Raspadskaya-Koksovaya mines is sent to the Raspadskaya coal concentrate preparation plant for processing and is then sold to customers as coal concentrate. Arrangements for coal extracted at the Raspadskaya-Koksovaya mine, however, are different. In connection with the acquisition of ZAO Koksovaya from Evraz (one of the Groups Controlling Shareholders) in April 2010, the Group entered into a long-term agreement with Evraz. This agreement requires the Group to sell all of its raw coal extracted at the Raspadskaya-Koksovaya mine to Evraz until such sales reach 1,080 thousand tonnes of raw coal per year. Any excess of raw coal above this threshold could be sold to third parties. Coal extraction at the Koksovaya and Raspadskaya-Koksovaya mines amounted to 419 thousand tonnes in 2010 and 945 thousand tonnes in 2011, so all coal extracted at the Raspadskaya-Koksovaya mine in 2010 and 2011 was sold to Evraz The Group does not purchase any raw coal from third parties to be used in the production of coal concentrate at its coal concentrate preparation plant. Production process Coal concentrate preparation involves the process of crushing the raw coal and removing impurities from coal in order to produce coal concentrate that meets certain specifications. Coal extracted at the

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Raspadskaya mine is delivered to the coal concentrate preparation plant by conveyors, while raw coal extracted at the MUK-96 mine and Raspadsky open pit is delivered to the coal concentrate preparation plant by trucks. The Group uses three coal processing methods at its coal concentrate preparation plantscreening, washing and froth flotation. Screening. At this stage of coal processing, all material above a certain size is eliminated as it can only consist of refuse and impurities and a significant proportion of the remaining raw coal is crushed to simplify further processing. Washing. At the Raspadskaya coal concentrate preparation plant, different methods of separating coal from refuse are used for particles of raw coal of several different sizes. Coal in the largest types of particles is separated from refuse using various types of washing processes, all of which are based on different densities of coal (with density of approximately 1,400 kilograms per cubic metre) and refuse (with density exceeding 2,000 kilograms per cubic metre). The smallest particles are first separated from the larger particles through washing and are then subjected to the froth flotation process, which is a physiochemical process that depends upon the selective attachment of air bubbles to coal particle surfaces but not to refuse particle surfaces. All equipment used at the coal concentrate preparation plant for washing and froth flotation is split between three sections. Each section can operate independently of the other and can treat particles of raw coal of any size, but only one of them can handle coal of Russian grades grades K (coking) and KO (coking semi-lean), which are considered to be prime-quality coking coals. The equipment used in the washing process includes, among other things, various types of screens that are used to separate coal into different size ranges, heavy media gravity separation equipment, jigs, hydrocyclone separators and spiral separators, with some of this equipment being used in certain predetermined sequences. In the heavy media separation process, which is based on different densities of coal and refuse, the particles of raw coal are immersed in a bath containing a medium of intermediate density, so that coal floats and refuse sinks. Heavy media gravity separation method uses magnetite to form a medium heavier than water to assist in separation. Jigs also use water for separation of coal from refuse. Raw coal particles of certain size are introduced into a pulsating bath of water. The raw coal is moved across a perforated plate with water pulsating through it. As a result of such treatment, a stratified bed of material is established with the heavier refuse at the bottom and the lighter coal at the top. At the discharge end, the refuse is removed from the clean coal, dewatered and is sent to a refuse site. Hydrocyclone separators are used to separate coal particles into different size ranges through gravity and rotational effects. In spiral separators, coal particles are carried down a spiral path with a stream of water and centrifugal forces direct the lighter coal particles to the outside of the stream and the heavier refuse particles to the inside. A splitter device at the discharge end separates the coal from refuse, which is then dewatered and sent to a refuse site. Coal concentrate that emerges from the equipment described above and that does not require further processing through froth flotation methods then has to pass through equipment that is used to reduce its moisture content and does not require any further treatment. Froth Flotation. Froth flotation is a physio-chemical process that depends upon the selective attachment of air bubbles to coal particle surfaces but not to refuse particle surfaces. This process involves the use of suitable reagents to establish a hydrophobic (water-repellent) surface on the coal particles to be floated. Air bubbles are generated within a tank and, as they rise to the surface, the reagent-coated coal particles adhere to the bubble, while the refuse remains at the bottom of the tank. The coal bearing froth is removed from the surface and is then dewatered by vacuum filtration. Coal concentrate that emerges from the froth flotation tanks has to pass through that is used to reduce its moisture content. The finished product is then loaded into railway trucks for delivery to customers or is sent to the storage facility. The Raspadskaya coal concentrate preparation plant was designed to high engineering standards and is fitted with high-quality equipment for preparation of coal concentrate. The coal concentrate preparation plant operates a closed water circuit process, resolving one of the principal environmental problems generally affecting coal concentrate preparation plants in Russia.

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Sales of coal concentrate The following table sets forth information on volumes of coal concentrate supplied by the Raspadskaya coal concentrate preparation plant to the Groups customers in 2011, 2010 and 2009.
Year ended 31 December 2011 2010 2009 (in thousands of tonnes)

Sales of coal concentrate in Russia:(1) Koks . . . . . . . . . . . . . . . . . . . . . . . . Evraz . . . . . . . . . . . . . . . . . . . . . . . MMK . . . . . . . . . . . . . . . . . . . . . . . NLMK . . . . . . . . . . . . . . . . . . . . . . Mechel . . . . . . . . . . . . . . . . . . . . . . Urals Steel . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

1,006 520 1,133 473 314 101 155 3,702 33 33 3,735

1,148 1,057 750 587 318 101 171 4,132 496 381 346 1,222 5,354

1,022 1,023 1,115 1,053 732 351 240 5,536 210 138 138 114 1,579 2,179 7,715

Total in Russia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sales of coal concentrate outside Russia:(2) China . . . . . . . . . . . . . . . . . . . . . . . . . . . Republic of Korea . . . . . . . . . . . . . . . . . . Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . Hungary . . . . . . . . . . . . . . . . . . . . . . . . . Ukraine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total outside Russia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(1) (2) Semi-hard coking coal. Semi-hard coking coal.

Integrated On-Site Transportation Infrastructure The Group has the ability to deliver its coal to customers either in the form of raw coal or as coal concentrate after processing raw coal at its Raspadskaya coal concentrate preparation plant. Raw coal extracted at the Raspadskaya mine is transported from the mine to the surface by a fully mechanised belt conveyor system, with a 1,500 metre-long 2LU-120B conveyor (2,200 tonnes per hour capacity) in the eastern inclined shaft and a 1,500 metre-long FSW-1400 conveyor (2,200 tonnes per hour capacity) in the western inclined shaft. The coal is then transported by transfer conveyors to either silos bunkers or to the open storage yard of the Raspadskaya coal concentrate preparation plant. MUK-96 transports the raw coal it extracts by fully mechanised conveyor belts that operate between the mine and a separate coal storage facility owned and operated by MUK-96. All raw coal extracted by MUK-96 is first placed in such separate storage facility and then loaded onto trucks for transportation to the Raspadskaya coal concentrate preparation plant. Coal extracted at coal field No. 1 site of the Raspadskaya-Koksovaya mine is transported to the surface by the conveyor in the inclined shaft No. 1 and then stored in the open-air coal storage yard with the capacity of 30,000 tonnes. From this storage facility, coal is loaded into open-top railway trucks for shipment to customers. The raw coal extracted at the Raspadsky open pit is transported from the open-pit area by trucks to the Raspadskaya coal concentrate preparation plant. The Raspadskaya coal concentrate preparation plant is connected to the Groups railway loading facility by a mechanised surface conveyor system. From the railway loading facility, coal concentrate and raw coal and are transported to the Mezhdurechensk railway station.

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Transportation of the Groups products to customers Currently, almost all coal concentrate and raw coal sold by the Group is transported by railway. The Group owns and operates its own coal transportation railway network of approximately 15 kilometres in length extending from its facilities to the Mezhdurechensk railroad station. This network is owned and operated by the Companys subsidiary TPTU. The Group currently owns ten locomotives. TPTU is not only responsible for timely and uninterrupted transportation of coal concentrate and raw coal from the Groups facilities to the Mezhdurechensk railroad station, but also earns revenue by shipping coal concentrate and raw coal for independent third-party companies located in the immediate vicinity of its railway network to the Mezhdurechensk railroad station. TPTU transported approximately 5.3 million tonnes, 4.0 million tonnes and 3.4 million tonnes of coal products from such third-party entities in 2011, 2010 and 2009, respectively. In 2011, 2010 and 2009, transportation services provided by TPTU to the Group accounted for approximately 47 per cent., 58 per cent. and 70 per cent., respectively, of TPTUs freight volume, with the remainder consisting of transportation services for the third-party entities. As of 31 December 2011, the railway operated by TPTU had an annual transportation capacity of approximately 20 million tonnes of coal products. For the year ended 31 December 2011, this railway transported approximately 10.1 million tonnes of coal products. All of coal concentrate which the Group sold to customers in Asia in 2009 and 2010 was delivered to them by railway and then by ship. Prior to the accident at the Raspadskaya mine in May 2010, when the Group sold large volumes of coal concentrate in the Asian markets, it was responsible, in connection with such sales, for payments in respect of the delivery of coal concentrate to the ports of the Far East for storage of coal concentrate in these ports and for loading of coal concentrate onto the ships. Marketing and sales From April 2004, the Group has sold coal products through the Companys wholly-owned subsidiary OOO Raspadskiy Ugol (Raspadskiy Ugol), which negotiates and executes coal supply contracts with both the Groups domestic customers and customers outside Russia. For information on volumes of the Groups sales of coal concentrate to individual domestic customers and its sales outside Russia by country, seeCoal concentrate preparationSales of coal concentrate. In addition, the Group sold 952 thousand tonnes of raw coal in 2011, 337 thousand tonnes of raw coal in 2010 and 26 thousand tonnes of raw coal in 2009. All sales of raw coal in 2010 and 2011 were to Evraz, one of the Companys Controlling Shareholders. In the past, almost all of the Groups coal concentrate and raw coal supply contracts had a duration of only one year, with a renewal option available to both parties upon contracts expiration. However, several years ago, the Group started seeking to enter into longer-term contracts with its customers, generally for a term of two to five years. Both the short-term and long-term supply contracts of the Group are negotiated and entered into by the Companys wholly-owned subsidiary Raspadskiy Ugol. As of the date of this Prospectus, Raspadskiy Ugol has framework long-term supply contracts with the Groups existing large domestic customers such as Evraz (through contracts with OAO Evraz United West Siberian Iron and Steel Plant, OAO Evraz Nizhny Tagil Iron and Steel Plant and OOO Trade House EvrazResource Ukraine, all of which are subsidiaries of Evraz), Koks (OOO Trade House Koks), MMK, NLMK, Mechel (OOO Trade House Mechel-Mining) and Urals Steel and several newly-added domestic customers such as Stroyservice (the owner of Gubakhinsky coking plant) and Severstal. Pursuant to the terms of the current contracts, the volumes are fixed for several years or for one year, depending on the contract and are confirmed on a quarterly and monthly basis. The prices in the contracts are reviewed on a quarterly basis. Delivery terms for the vast majority of the Groups supply contracts with customers other than customers in Asia are on a FCA (Free Carrier) Mezhdurechensk basis. Under FCA Mezhdurechensk arrangement, title to the Groups products is transferred to the customer when coal concentrate or raw coal, as applicable, is loaded into the customers railway trucks at the Mezhdurechensk railway station. The Group does not pay for any transportation-related expenses after this point and expenses for transportation under this arrangement are de minimis. Delivery terms for the supply contracts with customers in Asia were on a FOB (Free on Board) Russian Far East ports basis. The Group was responsible for payments in respect of the delivery of coal concentrate to the ports in the Russian Far East, for storage of coal concentrate in these ports and loading of coal concentrate onto the ships. FOB Russian Far East ports terms were applicable to deliveries of coal concentrate that require shipment by sea, as was the case with all export sales of coal concentrate to Japan, Republic of Korea and China in 2009 and 2010. All payments by the Groups domestic customers are in roubles, while payments from the Groups foreign

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customers are denominated in U.S. dollars. The Group has implemented internal procedures that monitor the payments of customers and provide reports if there are any payment delinquencies. The prices of the Groups coal concentrate sold both to domestic customers and to customers outside Russia and the prices of the Groups raw coal sold in Russia are determined primarily by market forces, which differ from market to market and from period to period depending on the specific market environment and trends. Although market environment and trends are significant factors in the determination of prices that the Group charges to its customers, the Groups management believes that the Groups position as a relatively low-cost Russian coal and coal concentrate producer allows it a greater flexibility in negotiating prices. For information on revenue per tonne of coal concentrate sold in Russia and outside Russia and on revenue per tonne of raw coal sold in Russia in 2011, 2010 and 2009, see Management Discussion and AnalysisSignificant Factors Affecting Results of OperationsChanges in volume of external sales of coal concentrate and raw coal and revenue per tonne of product sold. Competition The Group principally competes in three markets: (i) the domestic market in Russia, (ii) the Asian export market, with potential customers principally located in Japan, the Republic of Korea and China (iii) the Ukrainian export market. There are several large coking coal suppliers in the Russian coking coal market, with no particular domestic supplier holding a dominant position. Moreover, the Russian coal market is relatively limited in size and in the number of large and consistently active customers, as many metallurgical companies in Russia already have their own coal mining assets sufficient to satisfy their coke production-related needs. Aside from coal mines that are part of vertically-integrated metallurgical companies, there are very few large independent coking coal producers in Russia. The Groups principle domestic competitors in Russia are those coal producing companies that offer coking coal of similar grades as those extracted by the Group, such as OAO Yuzhkuzbassugol, OAO Vorkutaugol, ZAO Sibuglemet and OAO Belon. For a table with information on the leading Russian coking coal producers and their relevant market share as of 31 December 2011, see Industry OverviewRussian Coking Coal Market. The Groups management believes that the Group can compete effectively with its major domestic competitors due to the following factors: the Groups position as a relatively low-cost Russian coal and coal concentrate producer, which allows it to be flexible in negotiating prices; in the past, the Group was able to consistently satisfy its delivery obligations with the requested types of coal for its major customers. Even after the accident in May 2010, when coal extraction at the Raspadskaya mine was completely suspended for several months, the Group only reduced the volume of its deliveries to the Russian market by approximately 15 per cent. as compared to its contractual obligations; the high quality of the Groups coal concentrate and raw coal, including the ability of the Groups coal concentrate to satisfy technical requirements requested by the customers; and the Groups dedicated customer service, good long-term relationships with customers and strong brand name. After the accident at the Raspadskaya mine in May 2010, the Group suspended all exports of its coal concentrate until October 2011, when the Group resumed its export activity, but only to Ukraine, which accounted for approximately one per cent. of the Groups total sales in 2011. But prior to the accident, the Group was very successful in expanding its sales to Asian markets with 876 thousand tonnes and 486 thousand tonnes of coal concentrate exported to customers in Asia in 2010 and 2009, respectively. The Groups management intends to restart export sales to Asian markets and then further increase the proportion of such sales in the Groups total sales of coal concentrate and raw coal as the reconstruction of the Raspadskaya mine continues. Among Asian markets, Japan and Republic of Korea are currently expected to be particularly significant for the Groups future export sales. The Chinese market, however, is adversely affected by a large volume of low priced Mongolian supplies of coking coal and is not currently viewed by the Groups management as one of the priority markets for exports expansion. For additional information on competition in the Chinese coking coal market, see Appendix AMineral Experts Report 7.2.2 China.

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Prior to the accident at the Raspadskaya mine in May 2010, the Group regularly sold relatively large volumes of coal concentrate to customers in Ukraine. In 2010, the Group sold 346 thousand tonnes of coal concentrate to customers in Ukraine, 318 thousand tonnes of which were sold to coking plants owned by Evraz. In 2009, the Group sold 1,579 thousand tonnes of coal concentrate to customers in Ukraine, 698 thousand tonnes of which were sold to coking plants owned by Evraz. The Groups management believes that the Groups coal products exported to Ukraine generally have higher quality than comparable coal products supplied by Ukrainian coal mining companies, particularly with regards to sulphur content, which helps the Group to compete effectively in this market. In Ukraine, the Group competes principally with other Russian coal mining companies and local producers. Employees The following table sets forth information on the average number of employees at the Company and each of its principal subsidiaries in 2011, 2010 and 2009.
Year ended 31 December 2011 2010 2009

Coal mining: OAO Raspadskaya . . . . . . . . . . . . . . . . . . . . . . . . . OAO Mezhdurechenskaya Coal Company (MUK-96) ZAO Raspadskaya-Koksovaya . . . . . . . . . . . . . . . . . ZAO Razrez Raspadsky . . . . . . . . . . . . . . . . . . . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

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. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

3,476 925 1,178 641 6,220 433 55 147 423 708 0 19 173 8,178

3,669 929 827 529 5,954 447 53 139 433 711 0 23 119 7,879

4,033 832 261 499 5,625 426 46 135 483 694 1 20 44 7,474

Total for coal mining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Coal concentrate preparation: ZAO Preparation Plant Raspadskaya . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other: OOO Raspadskiy Ugol . . . . . . . . . . . . . . . . . ZAO Raspadskaya Coal Company . . . . . . . . . OAO Tomusinskoye Cargo Handling Unit . . . OOO Olzherasskoe Shaft-Sinking Unit OOO . OOO Raspadskaya-Energo . . . . . . . . . . . . . . OOO Raspadskaya Logistic Company . . . . . . OOO Montazhnik Raspadskoy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total for the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

In the second half of 2010, as a result of the accident at the Raspadskaya mine and complete suspension of coal mining at this mine until December 2010, some employees of this mine (less than sixty in each month of 2010) were sent to work at other Groups mines. In 2010 and 2011, 2,446 employees and 2,439 employees of the Raspadskaya mine, respectively, were involved in the reconstruction of this mine. The Groups management believes that training provided to the Groups personnel at all levels positively affects the Groups business and results of operations. For newly hired employees with no relevant work experience, the Group provides professional on-site training, as well as personal and group tutoring programmes. The Group also re-trains employees who want to switch jobs within the Group, as well as provides advanced training to its employees aimed at improving their professional expertise and skills sets. In addition to the on-site training, the Group also provides supplemental training to its employees outside of the Groups facilities. The Group has not experienced any labour strikes or other work stoppages resulting from labour disputes over the last 20 years and the Groups management considers relations with the Groups employees to be good. The Company and some of its operating subsidiaries are parties to collective bargaining agreements. Certain subsidiaries of the Company such as Razrez Raspadsky, Raspadskaya Preparation Plant, Raspadskiy Ugol, Raspadskaya Coal Company and Raspadskaya Logistic Company, however, have not entered into any collective bargaining agreements. In addition, a large number of the Groups employees are members of two trade unions.

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Health, Safety and Environmental Protection Underground and open-pit coal mining is an inherently dangerous activity. As with any construction or excavation work, there is a general risk of accidents involving the heavy equipment, machines, structures and explosives used in the coal mining industry. Moreover, employees working in underground mines are exposed to risks of accidents involving, among other things, underground fires and explosions, including those caused by methane and coal dust, cave-ins or ground falls and flooding. Employees working in open pits are exposed to risks of collapses of the open-pit walls, accidents associated with the operation of large open-pit mining and rock transportation equipment and accidents associated with large-scale open-pit blasting operations. See Risk FactorsRisks Related to the Groups BusinessThe Group is subject to mining risks. The scale of possible damage from these risks was demonstrated by the accident at the Raspadskaya mine in May 2010. SeeOperationsCoal miningThe Raspadskaya mineAccident at the Raspadskaya mine in May 2010. The Groups management considers the health and safety of the Groups employees to be their most significant responsibility in connection with the Groups operations. The Group strives to create a healthy and safe working environment at each of its facilities through the implementation of certain safety measures. The Group follows Russian industry safety standards applicable to each of its operations. For instance, all of the Groups equipment is certified by the Russian authorities for compliance with work safety requirements under Russian law. The Group also conducts its own inspections upon installation of any equipment in order to ensure proper instalment and enhance safety. In addition, the Group provides special training to its employees both prior to operating new equipment and every six months after they start operating equipment in order to improve safety and the efficiency of such employees work. The Group annually develops and approves a programme on health and safety improvements. The Groups management believes that the Group is in compliance in all material respects with all safety laws and regulations applicable to its business. Although the Groups management believes that the Groups operations have sufficient safety measures in place, the nature of the Groups business is such that accidents, including major accidents, may occur in the future. SeeOperationsCoal miningThe Raspadskaya mineAccident at the Raspadskaya mine in May 2010. In light of the May 2010 accident at the Raspadskaya mine, regulatory authorities conduct frequent inspections of the Raspadskaya mine and of other Groups mines and facilities. Occasionally, this results in partial closures of certain sections of the Groups mines, which disrupt the mines operations. Moreover, given that Russian legislation does not define what violations of industrial safety requirements are material, there may be no assurance that even an insignificant violation, which, in the judgment of Rostekhnadzor or a court, may cause injuries or death, will not be recognised as material by a court and considered as grounds for a partial suspension of the Groups operations at one of the Groups mines. Since 2010, there have been at least 20 court orders either temporarily suspending mining operations in various sections of the Groups mines, most frequently the Raspadskaya mine, or, on a couple of occasions in 2012, temporarily suspending operations of one of the Companys subsidiaries (OShPU, which is involved in construction of underground mine openings and sinking of vertical mine shafts). In most of these cases, the Group was allowed to resume operations in the affected mine prior to the end of the suspension term after curing the respective breaches of safety requirements. For a description of safety initiatives recently introduced at the Raspadskaya mine, see Appendix A Mineral Experts Report1.8 Health and Safety. The Groups management is committed to operating the Groups facilities in a manner that is consistent with applicable environmental laws and regulations. The Group has established an environmental services department to coordinate efforts to reduce negative effects of its operations on the environment. Such environmental services department monitors emissions of any air pollutants and the contents of waste water at the Groups sites and seeks to protect the Groups sites and the areas around such sites against contamination caused by certain industrial waste products. The principal source of any air pollutants the Groups mines and other production facilities may emit are its boiler house, its outdoor coal storage facilities and discharges that may occur in the course of, amongst other things, coal transportation and coal concentrate preparation. The principal source of any water pollution is mine water, although other waste water and rain water that may become contaminated with pollutants at the Groups production facilities also require treatment. The Groups environmental protection plans in 2012 focus principally on the treatment of mine water, other waste water and rain water, with approximately 570 million roubles budgeted for construction or upgrading of treatment facilities for collection and processing of such water in 2012.

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The Groups Raspadskaya coal concentrate preparation plant has commenced operations relatively recently, with the first phase of development completed in 2005 and the second phase of development completed in 2008. It was designed to significantly reduce the impact of any potential environmental hazards by means of, among other things, using a coal concentrate preparation process that reduces overall particle discharge into the atmosphere and a water system that collects and treats all waste water as well as recycles certain waste water for reuse at the coal concentrate preparation plant. The Group is currently not subject to any material environmental claims, lawsuits, penalties or other actions. For risks related to changes in environmental laws and regulations or stricter enforcement of existing environmental laws and regulations, see Risk FactorsRisks Related to the Groups Business Stricter environmental laws and regulations or stricter enforcement of existing environmental laws and regulations in Russia may have a material adverse effect on the Groups business, results of operations, financial condition and prospects. Insurance Pursuant to the Federal Law on Industrial Safety of Dangerous Industrial Facilities of 21 July 1997, as amended (the Safety Law), the Groups facilities for exploration, extraction, processing and transportation of coal fall under the category of hazardous production sites. In accordance with the Safety Law, the Group maintains mandatory insurance against civil liability arising from the operation of hazardous facilities. The Group also maintains all other types of insurance that are required to be maintained under Russian law. Thus, the Group participates in the mandatory state insurance programme for workplace injuries in accordance with the Federal Law on Mandatory Social Insurance of Industrial Accidents and Professional Diseases of 27 July 1998, as amended. The Group is duly registered with the Social Insurance Fund (the SIF) and makes monthly contributions to the SIF. The amount of the monthly contributions depends on the jobs performed by covered employees and varied between 0.2 per cent. and 8.5 per cent. of the funds allocated for employees salaries in 2011. Following the occurrence of any covered accident, the state pays compensation to the injured worker. All of the Groups insurance coverage is provided by Russian insurers. The Group currently does not carry insurance against damage to equipment, other than such equipment that is pledged under certain banking loans, or other property, environmental damage, construction risks or business interruption. Moreover, the Group carries only limited third party liability insurance that is mandatory under Russian law. See also Risk FactorsRisks Related to the Groups BusinessThe Group does not carry all of the types of insurance coverage customary in other more developed countries for a business of the Groups size and nature, and the Group may be unable to obtain adequate insurance cover. Properties The Groups mines and production and transportation facilities are located on land that belongs to the Mezhdurechensk municipality. The Group leased approximately 5,225 hectares of land in the Mezhdurechensk district from the local authorities as of 31 December 2011. Some of the Groups land lease agreements are short-term. In addition, the Group owned approximately 0.1 hectares of land as of 31 December 2011. The Group has a large number of buildings, other structures, unfinished construction projects and other real properties located on such land plots. The majority of these properties (including our headquarters building in Mezhdurechensk and the railway track between the Groups production facilities and the Mezhdurechensk railway station) are owned by the Group, while a number of other properties are leased from third parties. Legal Proceedings From time to time, the Group is involved in litigation in the ordinary course of its business activities such as disputes with contractors, suppliers and tax authorities. On 25 March 2011, the FAS issued a decision stating that Raspadskiy Ugol, a wholly-owned subsidiary of the Company which enters into all of the Groups coal concentrate and raw coal supply contracts, supplied foreign customers with coal concentrate at prices (recalculated from a FOB basis to a FCA basis) which were significantly lower than prices (calculated on a FCA basis) for the same products supplied to Russian customers. According to the FAS, Raspadskiy Ugol had violated section 10 (paragraph 6, part 1) of the Law on Protection of Competition. Raspadskiy Ugol challenged this decision of the FAS in the State Arbitrazh Court of Moscow and won the case in such court on 18 November 2011. The Ninth Appellate State Arbitrazh Court reviewed the decision reached by the Moscow State Arbitrazh Court in favor of

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Raspadskiy Ugol and affirmed the decision of the Moscow State Arbitrazh Court on 5 March 2012. There is one additional appellate level arbitrazh court to which the FAS can appeal and after that the decision can also be considered by the Supreme Arbitrazh Court of the Russian Federation. On 10 November 2011, the FAS issued a ruling on the fine for Raspadskiy Ugol in connection with its violation of section 10 (paragraph 6, part 1) of the Law on Protection of Competition. The amount of the fine was set at 90,493,978 roubles. Raspadskiy Ugol is challenging this ruling in the State Arbitrazh Court of Moscow. With respect to litigation arising from the accident at the Raspadskaya mine in May 2010, to date, almost all cases brought against the Group have been resolved. Pursuant to Russian law, while no criminal charges can be brought against a company, the families of the victims of the accident could make claims against the Group for moral damage and pain and suffering. In total, 49 cases were heard by the courts with respect to the accident at the Raspadskaya mine and the victims sought compensation in the amount of 114 million roubles. The Group has paid out 9.5 million roubles pursuant to the courts decisions. In March 2012, the Group faced another claim from the victims of the accident and their families in the total amount of 15.5 million roubles. This claim is yet to be considered by the court. Except as discussed immediately above, neither the Company, nor any member of the Group is or has been involved in any governmental, legal or arbitration proceedings (including any such proceedings that are pending or threatened of which the Groups management is aware) during the 12 months preceding the date of this Prospectus that may have, or have had, a significant effect on the Groups business, financial position or profitability.

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MANAGEMENT AND CORPORATE GOVERNANCE Overview The Companys current charter was approved by the Companys general shareholders meeting (the General Shareholders Meeting) on 8 June 2006 and was registered in the Unified State Register of Legal Entities on 9 June 2006. The Companys management bodies are the General Shareholders Meeting, the board of directors (the Board of Directors) and the sole executive body (the Sole Executive Body). The ultimate decision making body is the General Shareholders Meeting. It is followed by the Board of Directors, which is responsible for the general management of the Company, including determination of strategy and general supervision. The Sole Executive Body is responsible for the day-to-day operations of the Company. A brief description of each of the General Shareholders Meeting, the Board of Directors and the Sole Executive Body is set out below. General Shareholders Meeting The General Shareholders Meeting is the Companys supreme governing body. It is convened by the Board of Directors at least once a year. The powers of the General Shareholders Meeting are set forth in the JSC Law and the Companys charter. The General Shareholders Meeting has the power to decide, among other things, the following matters: amendments to the Companys charter; reorganisation of the Company; liquidation of the Company, appointment of liquidation commission and approval of an interim and the final liquidation balance sheets; election of members of the Board of Directors and early termination of their powers; appointment of the Sole Executive Body and early termination of its powers; increasing and decreasing the Companys share capital in the ways set out in the JSC Law and the Companys charter; distribution of dividends; approval of internal documents regulating the operation of the Companys management bodies; and other matters according to the JSC Law and the Companys charter. Board of Directors The Board of Directors is responsible for the general management matters, except for those matters that are designated by the JSC Law and the Companys charter as being the exclusive competence of the General Shareholders Meeting. The Board of Directors consists of seven members elected at the annual General Shareholders Meeting by cumulative voting. Under cumulative voting, each shareholder may cast an aggregate number of votes equal to the number of shares held by that shareholder, multiplied by the number of members of the Board of Directors, and the shareholder may cast all his votes in favour of one or several candidates. The powers of the Board of Directors may be terminated at any time by a majority vote at a General Shareholders Meeting. The members of the Board of Directors may be re-elected an unlimited number of times. The Board of Directors has the authority to decide, among other things, the following matters: determination of the Companys business strategy; convening an annual and extraordinary General Shareholders Meeting; issuance of bonds and other securities of the Company; approval of the Companys dividend policy; approval of internal documents regulating the operation of the Companys management bodies, except for those which fall within the exclusive competence of the General Shareholders Meeting; disposal of the Companys treasury shares; and

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 other matters according to the JSC Law and the Companys charter. All current members of the Board of Directors were elected at the General Shareholders Meeting held on 7 June 2011. The name, position and certain other information for the members of the Board of Directors is set out below.
Name Year of Birth Position

Alexander S. Vagin . . . . . . . . . . . . . Alexander G. Abramov . . . . . . . . . . Gennady I. Kozovoy . . . . . . . . . . . . Ilya M. Lifshits . . . . . . . . . . . . . . . . Geoffrey R. Townsend . . . . . . . . . . . Christian Schaffalitzky De Muckadell Alexander V. Frolov . . . . . . . . . . . .

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1959 1959 1951 1972 1949 1953 1964

Chairman Member Member Member Member Member Member

The business address of each of the members of the Board of Directors is 106, Mira Street, Mezhdurechensk, Kemerovo Region, 652870, Russia. Alexander S. Vagin has been the chairman of the Board of Directors since 1993 and the first deputy chief executive officer of Raspadskaya Coal Company (the Management Organisation) since March 2004. Mr. Vagin joined the Raspadskaya mine in October 1983 as an underground mining engineer. In the course of consecutive ten years, Mr. Vagin held various positions, including assistant section manager, deputy underground section manager, underground section manager and director for production. Mr. Vagin graduated from the Kuzbass Polytechnic Institute in 1981 with a degree in the underground development of mineral resources deposits. Alexander G. Abramov has been a member of the Board of Directors since 2001. Mr. Abramov is also the chairman of the board of directors of Evraz. Mr. Abramov joined one of predecessors of Evraz in 1992 and was the chief executive officer of Evraz (until 1 January 2006). Mr. Abramov previously worked at the Institute of High Temperatures of the Soviet Union Academy of Sciences. Mr. Abramov graduated from the Moscow Institute of Physics and Technology in 1982 and holds a Ph.D. in physics and mathematics. Mr. Abramov is a member of the Bureau of the Council of Entrepreneurs established by the Russian Government. Gennady I. Kozovoy has been a member of the Board of Directors since 1991 and the chief executive officer of the Management Organisation since April 2003. Mr. Kozovoy was the chief executive officer of the Company from December 1993 to June 2003. Mr. Kozovoy joined the Raspadskaya mine in 1978 as an underground electric mechanic and subsequently held various other positions, such as mining engineer, head of the underground unit, mining manager and deputy chief engineer of production. Mr. Kozovoy graduated from the Irkutsk Polytechnic Institute in 1978 with a degree in electrification and automation of mining. Mr. Kozovoy holds a Ph.D. in economics. Ilya M. Lifshits has been a member of the Board of Directors since 2006. Mr. Lifshits is an attorney and a certified auditor, as well as a member of the Moscow Chamber of Lawyers. Mr. Lifshits has been an attorney since 1994 and a partner of EDAS Law Bureau since 1999. Mr. Lifshits graduated from the Law Faculty of the Moscow State University in 1994. Mr. Lifshits holds a Ph.D. in law. Geoffrey R. Townsend has been a member of the Board of Directors since 2006. Mr. Townsend has been a member of the board of directors and the chairman of the audit committee of JSC TMK since 2005. Previously, Mr. Townsend specialised in audit and consulting (initially, with Touche Ross in the U.K. and subsequently with Treuverkehr and KPMG Deutsche Treuhand Gesellschaft in Germany, which he joined as an associate in 1984 and later became a partner). Since 1995, Mr. Townsend has been based in Moscow. Mr. Townsend was an adviser in connection with the privatisation programme in Eastern Germany. He was involved in the accounting reform in the Soviet Union and later in Russia and certain CIS countries. Mr. Townsend is a graduate of Oxford University in England.

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Christian Schaffalitzky De Muckadell has been a member of the Board of Directors since 2006. Mr. Schaffalitzky is currently the managing director of Eurasia Mining plc, a company specialising in geological survey and development of precious metal deposits in Russia. Mr. Schaffalitzkys experience includes over thirty years of production operations around the globe, including with Aquitaine Mining (Ireland) Ltd., a subsidiary of Elf Aquitaine Group, and with his own company Crowe, Schaffalitzky and Associates Ltd. (CSA). Mr. Schaffalitzky is a graduate of the Trinity College in Dublin. Alexander V. Frolov has been a member of the Board of Directors since 2001. From 2002 to 2004, Mr. Frolov was the chief financial officer of Evraz. From 2004 to April 2006, Mr. Frolov was the senior executive vice president of Evraz responsible for the functions of strategy and business development, finance, corporate affairs and communications, business processes, human resources, legal affairs and information technology. Since 2005, Mr. Frolov has been a member of the board of directors of Evraz. He served as chairman of the board of directors of Evraz from May 2006 to December 2008. Since 2007, Mr. Frolov has been the chief executive officer of Evraz. Prior to joining Evraz, Mr. Frolov worked as a research fellow at the I.V. Kurchatov Institute of Atomic Energy. He graduated from the Moscow Institute of Physics and Technology in 1987 and holds a Ph.D. in physics and mathematics. Sole Executive Body Pursuant to Russian legislation, the Companys charter and the agreement entered into between the Company and the Management Organisation on 2 June 2008, the Companys day-to-day activities are managed by the Management Organisation. It is also the management organisation of all subsidiaries of the Company. According to the Companys charter, the Sole Executive Body is elected at the General Shareholders Meeting for a period of five years and reports to the Board of Directors and the General Shareholders Meetings. The Management Organisation is managed by its chief executive officer, Gennady I. Kozovoy. The Management Organisation is responsible for the implementation of decisions of the General Shareholders Meetings and the Board of Directors. In addition, the Management Organisation is responsible for the following matters: carrying out the day-to-day management of the Companys operations; managing the Companys property; representing the Company in the Russian Federation and abroad; management of the Companys personnel, entering into and terminating labour agreements with the Companys employees; entering into transactions on behalf of the Company subject, when required by the JSC Law and the Companys charter, to approval by the General Shareholders Meeting or the Board of Directors; opening accounts of the Company with banks; accounting and reporting of the Company; performance of other functions, except for those reserved for the Board of Directors or the General Shareholders Meeting pursuant to the JSC Law and the Companys charter.

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The name, position and certain other information for the executive officers of the Management Organisation is set out below.
Name Year of Birth Position

Gennady I. Kozovoy . . . Alexander S. Vagin . . . . Oleg A. Kharitonov . . . . Anatoly M. Ryzhov . . . . Sergey N. Bakanyaev . . . Andrey V. Trofimov . . . . Valery V. Polosukhin . . . Vasily V. Kucherenko . . . Andrey N. Syvorotkin . . Sergey A. Kislitsyn . . . . Valery A. Noskov . . . . . Alexander T. Kuligin . . . Victor S. Chabin . . . . . . Vladimir A. Goryachkin . Alexander Y. Andreev . . Maxim V. Litvinov . . . . .

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1951 1959 1964 1951 1960 1963 1960 1953 1962 1956 1956 1947 1955 1952 1964 1971

Chief Executive Officer First Deputy Chief Executive Officer Director of Economic and Financial Affairs Engineering Director Director of the Company Director of MUK-96 Director of Raspadskaya-Koksovaya Director of Razrez Raspadsky Director of Raspadskaya Preparation Plant Director of OShPU Director of TPTU Director of Montazhnik Raspadskoy Deputy Chief Executive Officer on Commerce Deputy Chief Executive Officer on Capital Construction Deputy Chief Executive Officer on Strategic Planning Deputy Chief Executive Officer on Investments

The business address of each of the executive officers of the Management Organisation is Mira Street 106, 652870 Mezhdurechensk, Russian Federation. Oleg A. Kharitonov has been the director of economic and financial affairs of the Management Organisation since 2003. From October 2000 to September 2003, Mr. Kharitonov was the finance director of ZAO Raspadskaya Financial and Industrial Company (RFPK). Mr. Kharitonov graduated from the Kuzbass Polytechnic Institute in 1989 with a degree in economics and management of mining enterprises. Anatoly M. Ryzhov has been the engineering director of the Management Organisation since 2003. Mr. Ryzhov had worked in various capacities at the Raspadskaya mine from 1974 to January 2003. He graduated from the Kuzbass Polytechnic Institute in 1974 with a degree in underground mining and in 1992 with a degree in economics in the fuel and energy industry. Mr. Ryzhov holds a Ph.D. in technics. Sergey N. Bakanyaev has been the director of Raspadskaya mine at the Management Organisation since 2010. Mr. Bakanyaev had worked in various capacities at the Raspadskaya mine from 1988 to January 2004. From 2004 until 2010, Mr. Bakanyaev was the chief engineer of OShPU. Mr. Bakanyaev graduated from the Kuzbass Polytechnic Institute in 1984 with a degree in underground construction. Andrey V. Trofimov has been the director of MUK-96 since 2010. Mr. Trofimov had worked in various capacities at the Raspadskaya mine from 1988. Previously, Mr. Trofimov was the deputy chief executive officer of the Company for production. Mr. Trofimov graduated from the Kuzbass Polytechnic Institute in 1985 with a degree in mining machinery. Valery V. Polosukhin has been the director of Raspadskaya-Koksovaya since 2008. Prior to joining the Management Organisation, Mr. Polosukhin had worked as the deputy executive director of JSC Giprouglemash (former Design and Engineering Experimental Institute of Coal Machine Building). Mr. Polosukhin graduated from the Kuzbass Polytechnic University in 2001 with a degree in underground mining of mineral resources deposits. Vasily V. Kucherenko has been the director of Razrez Raspadsky since 2005. From October 2001 to May 2005, Mr. Kucherenko was the executive director of Razrez Raspadsky. From 1989 to 1990, Mr. Kucherenko was the deputy production manager at the Production Unit Kemerovougol, a Russian coal company). Mr. Kucherenko graduated from the Novocherkassk Metallurgical Institute in 1975 with a degree in technology and overall mechanisation of open-cut mining. Andrey N. Syvorotkin has been the director of Raspadskaya Preparation Plant since 2004. Since November 2003, Mr. Syvorotkin has also been the deputy chief executive officer for organisational development and human resources management at the Management Organisation. From August 2001 until October 2003, Mr. Syvorotkin was the deputy chief executive officer responsible for human resources at the Raspadskaya mine. From 1988 until 2000, Mr. Syvorotkin was employed at JSC Central Preparation Plant Kuzbaskaya where he started as a shift supervisor and later became a chief executive officer.

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Mr. Syvorotkin graduated from the Kuzbass Polytechnic Institute in 1984 with a degree in ore washing and in 2009 with a degree in underground mining of mineral resources deposits. Sergey A. Kislitsyn has been the director of OShPU since 2004. Mr. Kislitsyn joined the Management Organisation in 2001. Previously, he was the deputy chief executive officer of the Management Organisation and held other positions with the Management Organisation. Mr. Kislitsyn graduated from the Siberian Iron and Steel Institute in 1982 with a degree in underground mining of mineral recourses deposits. Valery A. Noskov has been the director of TPTU since 2004. Prior to joining the Management Organisation, he worked in various capacities for the Kuzbass Branch of the West-Siberian Railway. Mr. Noskov graduated from the Siberian State University of Railroads in 2002 with a degree in economic management. Victor S. Chabin has been the deputy chief executive officer on commerce of the Management Organisation since 2003. From September 1990 to December 2003, Mr. Chabin worked in various positions at the Raspadskaya mine, including leading engineer, head of the department and deputy director on commerce. From 1982 to September 1990, Mr. Chabin worked at the V.I. Lenin Mine as an overman and deputy site supervisor. Mr. Chabin graduated from the Tula Polytechnic Institute in 1982 with a degree in technology and overall mechanisation of underground mining. Vladimir A. Goryachkin has been the deputy chief executive officer on capital construction of the Management Organisation since 2006. Prior to joining the Management Organisation, Mr. Goryachkin worked as vice president and chief executive officer of JSC Yuzhniy Kuzbass, a the subsidiary of Mechel Group, deputy head of Mezhdurechensk on urban and regional development, deputy chief executive officer of JSC Sibuglemet, a Russian coal company, and chief executive officer of JSC Preparation Plant Mezhdurechenskaya. Mr. Goryachkin graduated from the Kuzbass Polytechnic Institute in 1984 with a degree in technology and overall mechanisation of open-cut mining. Alexander Y. Andreev has been the deputy chief executive officer on strategic planning of the Management Organisation since 2005. From 1999 to 2005, Mr. Andreev worked as head of development project department, head of raw material resources department, vice president of OOO EvrazHolding. He also worked in the Supreme Soviet of the Russian Federation and in the Administration of the President of Russia. Mr. Andreev graduated from the State University of Management in 1986 with a degree in automatic systems of management in construction industry and the Diplomatic Academy established by the Ministry of Foreign Affairs of the Russian Federation in 1997 with a degree in international relations. Maxim V. Litvinov has been the deputy chief executive officer on investments of the Management Organisation since 2005. From 2003 to 2005, he worked in OOO EvrazHolding. Mr. Litvinov graduated from the Magnitogorsk Mining and Smelting Institute in 1994 with a degree in IT systems, the State University of Management in 1996 with a degree in management and the Professional Evaluation Institute in 2002 with a degree in financial management. Mr. Litvinov has a Ph.D. in economics. The biographies of Gennady I. Kozovoy and Alexander S. Vagin are above (see Board of Directors). Interests of the Members of the Board of Directors and the Sole Executive Body of the Company Certain members of the Companys Board of Directors have beneficial ownership interests in the Companys shares. See Shareholders. None of the members of the Companys Board of Directors holds options in respect of the Companys shares. There are no conflicts or potential conflicts of interest between any duties owed by members of the Companys Board of Directors or the Management Organisation and their private interests and/or other duties. However, the Company has entered into in the past and expects to continue to enter into in the future, transactions that may be considered interested party transactions under the JSC law. (See the Related Party Transactions section of the Prospectus). Those transactions were and will be conducted on an arms length basis. Furthermore, none of these transactions, except those with Evraz related companies, are considered by the Company to be material transactions.

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Shareholdings of the Members of the Board of Directors As at the date of this Prospectus, the following members of the Board of Directors have beneficial ownership interests in the Companys shares: Mr. Kozovoy owns 50 per cent. of interest in Adroliv which owns 50 per cent. of interest in Corber Enterprises, the controlling shareholder of the Company; Mr. Vagin owns 50 per cent. of interest in Adroliv which owns 50 per cent. of interest in Corber Enterprises, the controlling shareholder of the Company; See Shareholders for more details. Corporate Governance The Company is in compliance with the corporate governance requirements applicable to it as a Russian public company listed on the Russian stock exchanges. In addition, the Company observes the code of corporate conduct, as recommended by the FSFM. In September 2006, the Board of Directors of the Company adopted a number of regulations relating to the corporate governance, including determining the formation and operations of certain committees of the Board of Directors. These committees are not separate management bodies but are advisory bodies, which consider the principal issues on the agenda of the Board of Directors meetings in advance of these meetings. Internal Auditor The internal auditor monitors financial and economic activities of the Company. He is elected at the annual General Shareholders Meeting. The internal auditor is authorised to carry out its functions as described or provided for in the regulations adopted by the Board of Directors, with such functions relating to the control of financial and business operations of the Company. Regulations In September 2006, the Board of Directors approved an internal regulation governing the internal control of the Companys financial and business operations (the Internal Control Regulation). The Internal Control Regulation specifies (i) the procedures for the internal control of financial and business operations of the Company, (ii) the functions of the Companys internal audit service of the Company with respect to compliance with internal controls, and (iii) the competences of internal audit service of the Company with respect to compliance with internal controls. In addition, in April 2010, the Board of Directors approved an internal regulation relating to the use of inside information (the Inside Information Regulation). The Inside Information Regulation provides that members of the Board of Directors, officers and directors and the Companys internal and external auditors must use inside information (as such term is defined in the Insider Information Regulation) only for the Companys benefit and in compliance with applicable law, the Inside Information Regulation and other internal documents of the Company. The Insider Information Regulation also provides for certain procedures that can be implemented in order to ensure compliance by all relevant individuals with such regulation. Remuneration The aggregate amount of remuneration paid by the Company to key management personnel (hire people) during the year ended 31 December 2011 was US$4.1 million in salary and bonuses, as compared to US$3.2 million and US$4.4 million in the years ended 31 December 2010 and 31 December 2009, respectively. Shareholders Agreement Corber Enterprises entered into a shareholders agreement with Adroliv and Mastercroft Mining Ltd. (Mastercroft) dated 20 January 2004, and as amended and restated on 28 April 2006 (the Shareholders Agreement), relating primarily to the management of Corber Enterprises, although certain provisions also affect the Companys operations. For instance, the Shareholders Agreement expressly states that all coal sold by the Company must be at market prices. In addition, the Shareholders Agreement sets forth a comprehensive list of shareholder matters pertaining to the Company that may only be decided upon after prior mutual approval in writing from both Adroliv and Mastercroft. Moreover,

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the Shareholders Agreement provides that day-to-day business operations of the Company must be entirely managed by the Management Organisation and that the chief executive officer and first deputy chief executive officer of the Management Organisation will be nominated by Adroliv only. Litigation Statement about Directors and Officers As of the date of this Prospectus, none of the members of the Board of Directors or the Management Organisation during at least the previous five years: has had any convictions in relation to fraudulent offences; or has held an executive function in the form of a senior manager or a member of the administrative, management or supervisory body of any company at the time of, or preceding, a bankruptcy, receivership or liquidation of such company.

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SHAREHOLDERS On 15 November 2011, the Companys board of directors approved a decision to acquire up to 78,079,980 (or up to approximately ten per cent.) ordinary registered undocumented shares of the Company, with the nominal value of 0.004 roubles per share, at the price of 150 roubles per share. The period for submission of applications for share buyback commenced on 19 December 2011 and expired on 31 January 2012. A total number of shares of the Company in relation to which applications for buyback had been properly submitted was 1,008,652,121 shares. On 6 February 2012, the board of directors of the Company approved a coefficient of proportional purchase of 0.077410217. Therefore, by 2 April 2012, the Company entered into share purchase agreements with all shareholders that properly submitted their applications, agreeing to acquire their shares on a pro rata basis. The Company will complete the buyback of its shares in the second quarter of 2012. After the completion of the buyback in the second quarter of 2012, all purchased shares will become treasury shares (non-voting) and, therefore, relevant interest of Corber Enterprises will increase up to approximately 82 per cent. of all voting shares. The following table sets forth the principal shareholders of the Company as of 30 November 2011 (before buyback):
Shareholder Percentage
(1)

Corber Enterprises Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other (free float) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(1)

80% 20% 100%

Corber Enterprises Limited is 100 per cent., owned by Mastercroft and Adroliv, with each entity owning a 50 per cent. interest with respect to voting shares. Mastercroft, a limited liability company organised under the laws of Cyprus, is a wholly-owned subsidiary of Evraz Group S.A. (Evraz). Adroliv, a limited liability company organised under the laws of Cyprus, is beneficially owned by Mr. Kozovoy and Mr. Vagin on a parity (50 per cent./50 per cent.) basis.

Under the Companys charter and Russian legislation, the shareholders of the Company are entitled to: participate in the management of the Company as provided for by the JSC Law and the Companys charter, and vote on all matters within the competence of the General Shareholders Meeting; receive dividends and, upon the Companys liquidation, receive a pro rata amount of the Companys property after performance of the Companys obligations, or its value as provided for by the relevant Russian legislation and the Companys charter; participate in the General Shareholders Meetings and vote on all matters to be decided at such meetings, including through a representative acting on the basis of a power of attorney; have access to the Companys documents (except for accounting documents and minutes of the collective executive body which are available only to the shareholders holding not less than 25 per cent. of the Companys share capital); and exercise other rights provided by the JSC Law and the Companys charter. The JSC Law and corporate governance requirements applicable to companies listed on Russian stock exchanges, provide certain protections to minority shareholders. For instance, there are supermajority shareholder approval requirements for certain corporate actions, pursuant to which a shareholder is able to demand that the company purchase the shares held by that shareholder if the shareholder voted against or did not participate in voting on certain types of actions. In addition, companies are required to obtain the approval of disinterested shareholders for certain transactions with interested parties and the shareholders owning not less than one per cent. of the companys stock may bring an action for damages caused by the companys managers or directors. Furthermore, since ordinary shares of the Company are listed on MICEX-RTS, the Company is required to comply with a number of corporate governance standards, which provide additional protection to its shareholders, including minority shareholders. See ManagementCorporate Governance. However, no assurance can be given that the applicable Russian laws and the corporate governance standards with which the Company has to comply will be able to fully protect the interests of its minority shareholders if such interests are in conflict with the interests of its controlling shareholders.

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RELATED PARTY TRANSACTIONS The following is a summary of the Groups most significant transactions with related parties for the years ended 31 December 2011, 2010 and 2009. General matters Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operation decisions as defined in International Accounting Standards 24 Related Party Disclosures (effective from 1 January 2011). In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form. Russian law requires a company that enters into so-called interested-party transactions to obtain specific approvals. The Group is, and has been, a party to various agreements and other arrangements with certain related parties, which are shown and described in more detail below. Transactions with related parties A significant amount of the Groups products is sold to related parties. The following table sets forth, on a historical basis, the sales of the Group to related parties for the periods indicated:
Years ended 31 December 2011 2010 2009 (in thousands of U.S. dollars)

Evraz ZSMK . . . . . . . . TC EvrazHolding . . . . . Evraz NTMK . . . . . . . . Southern Kuzbass . . . . . EvrazResource-Ukraine RSPK . . . . . . . . . . . . . Sibirsky Spas . . . . . . . . Yuzhkuzbassugol . . . . . TH EvrazResource . . . . Other entities . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

107,681 50,073 39,214 6,040 5,509 391 10 100 209,018

156,966 3,230 34,367 90 3 264 1,275 196,195

50,031 2,370 37,687 146 298 15,854 32 106,418

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The following table sets forth, on a historical basis, the purchases of the Group from related parties for the periods indicated:
Years ended 31 December 2011 2010 2009 (in thousands of U.S. dollars)

Evraz ZSMK . . . . . . . TC EvrazHolding . . . . Evraz NTMK . . . . . . . Southern Kuzbass . . . . EvrazResource Ukraine RSPK . . . . . . . . . . . . . Sibirsky Spas . . . . . . . . Yuzhkuzbassugol . . . . . TH EvrazResource . . . Other entities . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

8,595 4,410 1,118 5 2,064 16,192

10,686 1,361 1,400 54,889 3,382 71,718

10,557 1,544 187 2,131 14,419

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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The following table sets forth, on a historical basis, the amounts due to the Group from related parties at the dates indicated:
31 December 2011 2010 2009 (in thousands of U.S. dollars)

Evraz ZSMK . . . . . . . TC EvrazHolding . . . . Evraz NTMK . . . . . . . Southern Kuzbass . . . . EvrazResource-Ukraine RSPK . . . . . . . . . . . . . TH EvrazResource . . . Yuzhkuzbassugol . . . . . Sibirsky Spas . . . . . . . . Other entities . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

25,764 11,656 629 1,530 98 105 3 39,785

32,169 106 79 244 3 20 32,621

52,005 67 20,993 152 80 6 81 1 73,385

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The following table sets forth, on a historical basis, the amounts due from the Group to related parties at the dates indicated:
31 December 2011 2010 2009 (in thousands of U.S. dollars)

Evraz ZSMK . . . . . . . . TC EvrazHolding . . . . . Evraz NTMK . . . . . . . . Southern Kuzbass . . . . . EvrazResource-Ukraine RSPK . . . . . . . . . . . . . TH EvrazResource . . . . Yuzhkuzbassugol . . . . . Sibirsky Spas . . . . . . . . Other entities . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

1,539 316 1 109 297 2,262

1,420 195 700 16 18 155 2,505

579 8 32 655 1,274

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Evraz ZSMK (OAO EVRAZ United West-Siberian Iron and Steel Plant) is an entity under control of Evraz. In 2011, the Group sold raw coal and coal concentrate to this entity. These sales accounted for approximately 17 per cent. of the Groups total sales volumes of coal products. TC EvrazHolding (OOO Trade Company EvrazHolding) is an entity under control of Evraz. In 2011, 2010 and 2009, the Group sold raw coal and coal concentrate to this entity and bought from it certain steel products. In February 2011, an agreement with TC EvrazHolding on purchasing coal products from the Group for ZSMK and NTMK was terminated and replaced with separate agreements with these two companies. In 2011, 2010 and 2009, the Group sold approximately 9 per cent., 24 per cent. and 9 per cent. of the total sales volumes of coal products, respectively, to this entity. Evraz NTMK (OAO EVRAZ Nizhny Tagil Iron and Steel Plant) is an entity under control of Evraz. In 2011, the Group sold coal concentrate to this entity. These sales accounted for approximately 5 per cent. of the Groups total sales volumes of coal concentrate. Southern Kuzbass (OAO Southern Kuzbass Coal Company), a Russian coal mining company controlled by OAO Mechel, is a minority shareholder of a subsidiary of the Group. The subsidiary renders transportation services to the Group and to Southern Kuzbass. EvrazResource-Ukraine (OOO Trade House EvrazResource-Ukraine) is an entity under control of Evraz. In 2011, 2010 and 2009, the Group sold coal concentrate to this entity. These sales accounted for approximately 1 per cent., 6 per cent. and 9 per cent. of the Groups total sales volumes of coal products in 2011, 2010 and 2009, respectively.

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RSPK (OOO Raspadskaya Constructing Industrial Company) is an entity under control of the shareholders of Adroliv. The entity provides cleaning and renovating services to the Group. TH EvrazResource (OOO Trade House EvrazResource) is an entity under control of Evraz. In 2009, the Group sold coal concentrate to this entity. These sales accounted for approximately 4 per cent. of the Groups total sales volumes of coal products. Yuzhkuzbassugol (OAO Yuzhkuzbassugol Combined Coal Company) is an entity under control of Evraz. On 28 April 2010, the Group bought from it ZAO Koksovaya and certain items of property, plant and equipment related to the acquisition. Other transactions with the entity were insignificant. Sibirsky Spas (ZAO Sibirsky Spas Insurance Company) is an entity under control of the shareholders of Adroliv. The entity provides insurance services to the Group. As at 31 December 2011, 2010 and 2009, the Group had prepayments to related parties for property, plant and equipment in the amount of US$149,000, US$106,000 and US$5,000, respectively. Other For further information regarding the related party transactions entered into by the Group in the years ended 31 December 2011, 2010 and 2009, see Notes to the Consolidated Financial Statements included elsewhere in this Prospectus.

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REGULATION OF THE COAL MINING INDUSTRY IN RUSSIA General The coal mining industry in Russia is an important sector of the Russian economy and consists of various activities, including mining operations, transportation and use of coal, organisation of labour and occupational health and safety, and other areas that are subject to legal regulation. As mining operations are hazardous, they are also subject to supervision by various specialised governmental authorities, including those responsible for subsoil use, industrial safety, health and the Ministry of Energy epidemiological welfare, environmental safety etc. The Russian Ministry of Energy is the federal authority responsible for the development and implementation of governmental policy in the fuel and energy sector, including the coal mining industry. However, it lacks direct regulatory authority. The Ministry of Natural Resources oversees the use of natural resources in Russia. It is responsible for the development of general policy and legislation, regulating the use, replenishment and protection of natural resources. The Ministry of Natural Resources manages and protects mineral deposits, forests and water resources, among other things, and coordinates and oversees the work of the Federal Service for Supervision of the Use of Natural Resources (Rosprirodnadzor), Rosnedra, the Federal Service for Hydrometeorology and Environmental Monitoring, and the Federal Agency for Water Resources. The federal services and agencies that regulate the Companys business include Rosnedra, Rosprirodnadzor, Rostekhnadzor, the Federal Labour and Employment Service (Rostrud), the Federal Agency for Technical Regulation and Metrology, and the FAS. Rostekhnadzor oversees compliance with mandatory safety rules for the coal mining industry. Safety procedures to be followed during the installation, deployment and operation of equipment and machinery, as well as technological processes used in the coal mining industry, are covered by such rules. Rosnedra is the federal licensing authority for the use of natural resources and mainly organises tenders and auctions, issues licences for the use of natural resources and approves design documentation for subsoil use. Rosnedra is also a state supervising body authorised to suspend, limit or terminate a licence, particularly in case of a threat to health or life of the people residing or working in the mining area, or in case of a material breach of the conditions set up by the licensing agreement, as well as in other cases. Rosprirodnadzor is authorised to inspect whether the mining operations are in compliance with the requirements of the licensing agreement. In cases of non-compliance, Rosprirodnadzor is entitled to apply to Rosnedra to suspend, limit or terminate the licence. The FAS implements government policy on the development of commodity markets, support of competition, enforcement of the antimonopoly legislation, and prevention or termination of anti-competitive behaviour, unfair business practices and other actions restricting competition. The FAS also determines abuses of a dominant market position and clears acquisitions of major stakes in companies which meet certain criteria. In addition to the above-mentioned federal executive bodies that are directly involved in the regulation and supervision of the Russian coal mining industry, there are a number of other governmental bodies and agencies, have authority over general issues that are also connected with the coal mining industry, such as defence, railways and taxation. Applicable laws, Rules and Regulations Regulation of the coal mining industry in Russia is based on Subsoil Law, Federal Law No. 81-FZ On Governmental Regulation in the Sphere of Mining and Use of Coal, and on Specifics of Social Protection of Workers in Coal Industry Organisations (the Coal Industry Law), dated 20 June 1996 (as amended), Federal Law No. 116-FZ On Industrial Safety of Hazardous Production Facilities (the Industrial Safety Law) dated 21 July 1997 (as amended), Resolution of the Russian government No. 14-p On the Approval of the Long-Term Perspectives for the Coal Industry to the Year 2030 dated 24 January 2012, Coal Mines Safety Instructions adopted by Decree of the Federal Service for Supervision in Mining Industry (Gosgortekhnadzor) No. 50 dated 5 June 2000 and other acts.

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Licensing The Company is required to obtain licences, permits and authorisations from Russian governmental authorities to conduct its operations. The Federal Law No. 99-F2 on Licensing of Certain Types of Activities dated 4 May 2011 (as amended) (the Licensing Law) and other laws and regulations list activities which can only be performed under a licence issued by the relevant Russian authorities and establish the procedures for the issuance of such licences. In order to conduct its operations, the Company requires licences and permits for, among other things: subsoil use, as described in more detail in the section Subsoil Licensing; water consumption (the use of water resources), according to the Water Code of the Russian Federation No. 74-FZ dated 6 June 2006 (as amended); discharge of pollutants into the environment; geographical surveying; handling of hazardous waste (collection, use and recycling); storage, use and decommissioning of explosive materials; operation of hazardous production facilities (explosive, chemical and fire hazards); and transportation of hazardous materials by a railway or river and sea transport. Licences granted under the Licensing Law are issued for unlimited period of time. Under the licensing regulations and the terms of the Companys licences and permits, the Company must comply with numerous industrial standards, employ qualified personnel, maintain certain equipment and a system of quality control, maintain insurance coverage, monitor operations, make appropriate filings and, upon request, submit information requested by the licensing authorities that oversee and inspect its activities. A licence may be suspended in case of (i) imposition on the licensee of administrative sanctions and (ii) administrative suspension of activities for gross breach of the licensing requirements. A licence may also be cancelled by the court in case of repeated breach of the licensing requirements after suspension of the licence. According to the Urban Planning Code of the Russian Federation No. 190-FZ dated 29 April 2004 (as amended) (the Urban Planning Code), design, construction and reconstruction of permanent structures and facilities, including those used in mining, are subject to certain permissions for construction or reconstruction and review of the design documentation by Glavgosexpertiza. Subsoil Licensing Overview Since according to the Subsoil Law, all subsoil plots in Russia are publicly owned, coal mining requires a subsoil licence under which the rights to explore the subsoil plot and/or mine coal are granted. Subsoil licences are issued by Rosnedra, usually through a tender or auction procedure held in compliance with the Subsoil Law, the Russian Civil Code and the Procedure for the Licensing of Subsoil Use (as amended) adopted by Resolution of the Supreme Soviet of the Russian Federation No. 3314-1 dated 15 July 1992 (3314-1 Procedure). A licence granted under the Subsoil Law is accompanied by a licensing agreement, which sets out the terms and conditions for use of the subsoil. There are two major types of licences: (i) exploration licences, which are non-exclusive licences granting the right of geological exploration and assessment within the licence area, and (ii) extraction licences, which grant the licensee an exclusive right to extract minerals from the licence area. In practice, many of the licences are issued as combined (exploration and extraction) licences, which grant the right to explore, assess and extract minerals from the licence area, which is defined by its latitude, longitude and depth. Currently, extraction licences and combined exploration and extraction licences are awarded by tender or auction conducted by special auction commissions of Rosnedra. While such auction or tender may involve a representative of the relevant region, in general no separate consent of regional authorities is required to issue subsoil licences. The winning bidder in a tender is selected on the basis of the most technically competent, financially appealing and environmentally sound proposal that meets the published tender terms and conditions. At an auction, the success of a bid is determined by the attractiveness of the

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financial proposal. In certain limited circumstances production licences may also be issued without holding an auction or tender, e.g. to holders of exploration licences who discover mineral deposits through exploration work conducted at their own expense. The Russian government may establish certain restrictions limiting participation by companies with foreign ownership in auctions and tenders for licences to explore subsoil plots officially designated as being of federal importance. Pursuant to the Subsoil Law, a subsoil plot is provided to a subsoil user as a mining allotment, i.e. a geometric block of subsoil. Preliminary mining allotment boundaries are determined at the time the licence is issued. Exact mining allotment boundaries are established upon the approval of a development plan by the state mining supervision authorities and a review committee (pursuant to Resolution No. 118 of the Russian government dated 3 March 2010, where such committee is comprised of representatives of the Ministry of Natural Resources, Rosnedra, and Rostekhnadzor). These exact boundaries are certified in a mining allotment plan issued subsequently to the licence holder. The exact mining allotment boundaries are incorporated as an integral part of the licence. The term of the licence is indicated in the licence. Prior to January 2000, exploration licences could have a maximum term of five years, production licences a maximum term of 20 years, and combined exploration and production licences a maximum term of 25 years. Following an amendment to the Subsoil Law in January 2000, the maximum term of exploration licences remains five years, whereas exploration and production licences are generally granted for the expected operational life of the field, based on a feasibility study, except under certain circumstances where the licence may be issued for a term of one year. The amendments to the Subsoil Law do not affect the terms of the licences issued prior to January 2000, but do permit licensees to apply for an extension of such licences to the expected operational life of the respective field, in accordance with the amended Subsoil Law. The term of a subsoil licence begins to run from the date the licence is registered. Extension of Licences The Subsoil Law permits a subsoil licensee to request an extension of an extraction licence in order to complete extraction at the subsoil plot or to complete the procedures necessary to vacate the land once use of the subsoil is finished. The granting of such extensions is contingent upon the licensees compliance with the terms and conditions of the licence and the relevant regulations. To extend a subsoil licence, at least six months before it is due to expire, the company must file an application with the local office of Rosnedra, as provided for by the Administrative Order of Rosnedra, adopted by Resolution of Ministry of Natural Resources No. 315 dated 29 September 2009. In practice, among the factors that may affect a companys ability to obtain the approval of licence extension is its compliance with the licence terms and conditions. Transfer of Licences Licences may be transferred only under certain limited circumstances specified in the Subsoil Law, including reorganisation of the licence holder or where the licence holder transfers the licence to a newly established legal entity, in which it has at least a 50 per cent. ownership interest (subject to the transferee possessing the equipment and authorisations necessary to conduct the exploration or extraction operations covered by the transferred licence). Production licences for subsoil plots officially designated as being of federal importance cannot be transferred to a company where a foreign entity or a group of entities with foreign participation (i) directly or indirectly controls 10 per cent. of the voting shares comprising the share capital of such company; (ii) determines the decisions taken by such company including terms and conditions of its business; and (iii) appoints the chief executive officer and/or more than 10 per cent. of the members of the board of directors (supervisory board) or other collective management board of such company. However, in certain exceptional cases the Russian government may approve the transfer of licences to such company. With respect to subsoil plots of federal importance, certain restrictions on involvement by foreign entities are established by Federal Law No. 57-FZ On the Procedure for Foreign Investment in Companies of Strategic Importance for National Defence and State Security (the Strategic Companies Law), dated 29 April 2008 (as amended). According to the Subsoil Law, subsoil plots of federal importance are plots containing deposits of (i) valuable minerals (e.g., uranium, diamonds, nickel and platinum group elements); (ii) more than 70 million metric tonnes of extractable oil; (iii) more than 50 billion cubic metres of gas; (iv) more than 50

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metric tonnes of vein gold; or (v) more than 500,000 metric tonnes of copper. Subsoil plots under inland seas, the territorial sea and the continental shelf of the Russian Federation and on land designated for national defence and state security purposes, are also considered subsoil plots of federal importance. The Subsoil Law and Resolution No. 823 of the Russian government dated 7 November 2008 stipulate that a list of subsoil plots of federal importance is to be officially published by Rosnedra. The current edition of the list is as of 14 December 2011. Under the Strategic Companies Law, the prior approval of a special governmental committee must be obtained for any transaction with shares in a company that uses a subsoil plot of federal importance if, as a result of such transaction, a foreign entity or an entity that is part of a group that includes a foreign entity, will acquire: (i) control (direct or indirect) of more than 25 per cent. of the total number of votes attributable to the voting shares or stakes making up the companys share capital; or (ii) the right to appoint the chief executive officer of a company of strategic importance or to appoint more than 25 per cent. of the members of its collective executive body, board of directors or other management body. Coal deposits are not designated as plots of federal importance. Therefore, the provisions of the Subsoil Law and the Strategic Companies Law regarding participation by foreign entities do not apply to coal deposits. Maintenance and Termination of Licences A licence sets out the terms and conditions for the use of the subsoil plot and certain environmental, safety and production commitments. Rosnedra and the licensee may also enter into a licensing agreement setting out expressly agreed additional terms, such as target extraction rates; certain mining, exploratory and development activities; environmental protection measures in the licence area; provision of geological data to the local authorities, and fulfilment of commitments with respect to social and economic development of the region. When the licence expires, the licensee must return the land to a condition suitable for its future use. Although most of the conditions set out in a licence are based on mandatory provisions of Russian law, some provisions in licensing agreements are left to the discretion of the licensing authorities and are often negotiated between the parties. If a subsoil licensee fails to fulfil the licence conditions, upon notice the licence may be annulled by the licensing authorities. The Subsoil Law and other Russian legislation contain extensive provisions governing limitation, suspension and termination of the rights of subsoil users. A licensee can be fined or its rights can be limited, suspended or terminated for multiple breaches of law, as a consequence of immediate danger to the lives or health of people working or residing in the area, or in the event of certain emergency situations. A subsoil users rights may also be limited, suspended or terminated for violations of material terms of the licence. Although the Subsoil Law does not specify which terms are material, failure to pay subsoil taxes and failure to commence operations on time are common grounds for limiting, suspending or terminating the subsoil users rights. Consistent overproduction or underproduction and failure to meet obligations to finance a project (pursuant to the licensing agreement) are also likely to be construed as material breaches of licence terms. Some licences also provide that should the subsoil licensee fail to meet any of its obligations, this may constitute grounds for limitation, suspension or termination of its rights as a subsoil user. Payments There are two key types of payments with respect to minerals extraction in Russia: (1) periodic payments for use of the subsoil, stipulated by the Subsoil Law; and (2) the minerals extraction tax, provided for in the Russian Tax Code. Failure to make these payments could result in the suspension or termination of the subsoil licence. The tax rate is 57 roubles per one tonne of raw coking coal. This rate is required to be multiplied by an index ratio published quarterly by the Ministry of Economic Development of the Russian Federation. In the first quarter of 2012, this index ratio was equal to 1.068 for coking coal.

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Rights to Surface Land Plots Russian legislation prohibits carrying out any commercial activity, including minerals extraction, on a land plot without the appropriate rights of land use. Land use rights are generally obtained only for those parts of the licence area which are actually in use, including the plot being mined, access areas, and areas where other mining-related activity is being carried out. Pursuant to the Russian Land Code, companies generally have one of the following land rights in the Russian Federation: (i) ownership; (ii) lease; (iii) right of unrestricted use for a fixed term; or (iv) right of perpetual use. The majority of land plots in the Russian Federation are owned by federal, regional or municipal authorities which, through public auctions or tenders or through private negotiations, can sell, lease or grant other land use rights to third parties. Companies may also have a right of perpetual use of land that was obtained prior to the enactment of the Russian Land Code; however, the Federal Law On Enactment of the Russian Land Code, dated 25 October 2001, with certain exceptions, requires that by 1 January 2012 companies using land on the basis of rights of perpetual use must either purchase the land from, or enter into a lease agreement for the land with, the relevant federal, regional or municipal authority that owns the land. Upon expiration of a land lease, the lessee generally has a priority right to enter into a new land lease agreement with the lessor. To renew a land lease agreement, the lessee must apply to the lessor (usually federal or municipal authorities) for renewal before the agreement expires. Any lease agreement with a term of one year or more must be registered with the relevant state authorities. Russian law establishes different procedures for granting rights to a subsoil plot and rights to a surface land plot. As described above, the rights to a subsoil plot are granted on the basis of a tender or auction procedure held in accordance with the Subsoil Law, the Russian Civil Code and 3314-1 Procedure. The rights to the surface land plot are acquired separately by the licence holder pursuant to the Russian Land Code. If a surface land plot is publicly owned (by federal, regional or municipal authorities), the licence holder may enter into a lease for the land plot without any tender procedure. If a surface land plot is privately owned, then the rights to it must be acquired from the respective individual or legal entity, and the terms dictated by the latter may be unacceptable. Since 2007 the Subsoil Law has granted local authorities the right to expropriate surface land plots from their private owners following an application from a licence holder, in accordance with the procedure established by the Russian government. To date, no such procedure has been adopted, and in many cases the local authorities refuse to expropriate land plots through compulsory purchase at the expense of the local budget. Industrial Safety Coal mines and coal mining facilities are deemed hazardous production facilities (HPF). Any person or entity operating HPF must, as a rule, (i) obtain a licence to operate the HPF; (ii) prepare and approve a declaration of safe industrial practices; and (iii) enter into an insurance contract for the HPF covering damage caused by possible accidents. Rostekhnadzor, being the authority that oversees the operation of HPF and compliance with industrial safety regulations, is entitled to inspect HPF, order actions to remedy violations of the regulations, suspend a companys operations or file suit in court to impose penalties on the company (see item 1 of the section Liability). As stipulated by the Industrial Safety Law, any person or entity operating HPF must use certain specialised equipment and implement a system to monitor operations at the HPF. In particular, following a number of accidents in the coal mining industry in recent years, the installation of an air and gas monitoring system is required pursuant to Rostekhnadzor Order No. 1158 On Amendment of the Coal Mines Safety Rules dated 20 December 2010 and Order No. 678 On Adoption of the Regulation on Air and Gas Monitoring in Coal Mines dated 1 December 2011. In addition to installing such systems, the Coal Industry Law provides that companies operating coal mines must ensure the removal of gases, otherwise administrative penalties may be imposed (see item 2 of section Liability). Environmental Safety, Sanitary and Epidemiological Welfare Coal mining is environmentally hazardous, so certain restrictions and additional obligations are imposed on persons and entities engaging in coal mining operations.

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As provided by Federal Law No. 52-FZ On the Sanitary and Epidemiological Welfare of Inhabitants dated 30 March 1999 (as amended) and the health regulations, a person or entity operating a coal mine must establish and approve a so-called sanitary buffer zone around the mine, to which a special regime applies that includes certain restrictions on operations and additional obligations. Sanitary buffer zones should cover a distance of one kilometre from an open-cast mine and 300 metres from an underground mine. Any activities that may have an environmental impact are subject to state approval by federal authorities in accordance with Federal Law No. 174-FZ On Environmental Expert Review dated 23 November 1995 (as amended). If activities that could have an environmental impact are performed without such state approval, this may result in the adverse consequences described in the section Liability below. Pay-to-pollute Federal Law No. 7-FZ On Environmental Protection dated 10 January 2002 (as amended) establishes a pay-to-pollute regime administered by federal and local authorities. The Russian government has established standards on the permissible impact on the environment and, in particular, limits for emissions and discharges of substances, waste disposal and resource extraction. If these statutory limits are exceeded, a company may face penalties under Russian law. Environmental liability If a companys operations do not comply with the environmental regulations or harm the environment or any individual or legal entity, legal action may be brought to limit or stop such operations and order the company to remedy the effects of the violation. Any company or employees that fail to comply with environmental regulations may be subject to administrative and/or civil liability, and individuals may also be held criminally liable. The courts may also impose clean-up obligations on violators in lieu of, or in addition to, imposing fines or other penalties to compensate for damages. For further detail, please see items (5) to (10) in the section Liability. Subsoil licences generally require certain environmental commitments on the part of the licensee. Although such commitments can be substantial, the penalties for failure to comply and the reclamation requirements are generally low. Failure to comply with reclamation requirements, however, can lead to the suspension of mining operations. Labour issues The organisation of labour and occupational health and safety are regulated by the Russian Labour Code and the Federal Industry-wide Agreement on the Coal Industry in 2010-2012, registered by the federal employment regulator Rostrud on 30 April 2010, which sets out shortened working day, the specifics of time sheets, the minimum wages for miners, additional social security etc. The supervision of labour issues is within the ambit of the State Labour Inspectorate of the respective region, which has the power to impose penalties on companies that operate mines as well as their executive officers (see section 3 of the section Liability below). Employment contracts As a general rule, open-ended employment contracts, i.e. employment contracts concluded for an indefinite term, are used with all employees. Russian labour legislation expressly limits the possibility of entering into fixed-term employment contracts. That said, in certain cases an employment contract may be entered into for a fixed term of up to five years if the employment relationship cannot be established for an indefinite term due to the nature of the duties or the conditions of the performance of the duties, as well as in other cases expressly provided for by federal law. An employer may terminate an employment contract only on the basis of the certain specific grounds set out in the Russian Labour Code, including, without limitation: winding-up of the enterprise or downsizing of staff; failure on the part of the employee to meet the requirements of the position due to incompetence;

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 systematic failure by the employee to fulfil his/her duties, subject to disciplinary penalties having already been imposed on the employee; any single gross violation by the employee of his/her duties, such as violation of safety regulations or alcoholic or narcotic intoxication; and provision by the employee of falsified documents or misleading information prior to entry into the employment contract. An employee dismissed from a company due to downsizing or winding-up is entitled to compensation that includes a severance payment and, depending on the circumstances, a payment in the amount of the average monthly earnings for a period of two months until the employee finds a new job. The Russian Labour Code also provides certain protections for some categories of employees such as minors, expectant mothers, mothers with a child under the age of three, single mothers with a child under the age of fourteen or a disabled child under the age of eighteen, or other persons caring for a child under the age of 14 or a disabled child under the age of eighteen without a mother. Any termination of employment by an employer that is inconsistent with the Russian Labour Code may be invalidated by a court, and the employee may be reinstated. Lawsuits resulting in the reinstatement of illegally dismissed employees and the payment of damages for wrongful dismissal are increasingly frequent, and Russian courts tend to support employees rights in most cases. Where an employee is reinstated by a court, the employer must compensate the employee for unpaid salary for the period between the wrongful termination and his/her reinstatement, as well as for mental distress. Work time The Russian Labour Code generally sets the regular working week at 40 hours. Any time worked over 40 hours per week, and work done on public holidays or weekends must be compensated at a higher rate. By law, annual paid leave is generally 28 calendar days. Employees who perform work underground, at open-pit mines or under other harmful conditions may be entitled to a shorter working week and additional paid vacation. The retirement age in the Russian Federation is 60 years for men and 55 years for women. However, the retirement age for miners is less than the general retirement age. Strikes The Russian Labour Code defines a strike as a temporary and voluntary refusal by workers to perform their job duties with the intention of settling a collective labour dispute. Russian legislation establishes several requirements that must be met for a strike to be legal. Participation in a legal strike may not be used by an employer as grounds for terminating an employment contract, although employers are generally not required to pay wages to striking employees for the duration of the strike. Participation in an illegal strike may serve as valid grounds for termination of employment contracts. Trade Unions Although recent Russian labour regulations have curtailed the authority of trade unions, they still retain significant influence over employees and, as such, may affect the operations of large industrial companies in Russia. The activities of trade unions are generally governed by Federal Law No. 10-FZ On Trade Unions, Their Rights and Guarantees for Their Activity dated 12 January 1996 (as amended) (the Trade Union Law) and the Russian Labour Code, which contain detailed regulations relating to trade union activities. The Trade Union Law defines a trade union as a voluntary union of individuals with common professional and other interests which has been organised for the purposes of representing and protecting its members rights and interests. National trade union associations, which coordinate the activities of trade unions throughout Russia, are also permitted. Trade unions may: negotiate collective bargaining agreements, such as those between trade unions and employers, federal, regional and local governmental authorities, and other entities; monitor compliance with labour law and collective bargaining agreements;

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 access work sites and offices, and request information relating to labour issues from the management of companies and state and municipal authorities; represent their members and other employees in individual and collective labour disputes with management; and participate in strikes. Russian laws require that companies cooperate with trade unions and do not interfere with their activities. Trade unions and their officers also enjoy certain guarantees, such as: protection from disciplinary punishment or dismissal by the employer without prior consent of the management of the trade union and, in certain circumstances, the consent of the relevant trade union association; retention of job positions for those employees who stop working due to their election to a management position within a trade union; protection from dismissal for employees who previously served in the management of a trade union for two years after their term of office expires; and provision of the necessary equipment, premises and vehicles by the employer for use by the trade union free of charge, if provided for by the respective collective bargaining agreement or other contract. If a trade union discovers any breach of the requirements applicable to working conditions, notification is sent to the employer with a request to remedy the violation and to suspend work if there is an immediate threat to the lives or health of the employees. The trade union may also apply to state authorities and employment inspectors and prosecutors to ensure that an employer does not violate Russian labour law. Trade unions may also initiate collective labour disputes, which may lead to strikes. To initiate a collective labour dispute, trade unions present their demands to the employer. The employer is then obliged to consider the demands and notify the trade union of its decision. If the dispute remains unresolved, a reconciliation commission attempts to end the dispute. If this proves unsuccessful, collective labour disputes are generally referred to mediation or labour arbitration. The Trade Union Law provides that those who infringe on the rights and guarantees afforded trade unions and their officers may be subject to disciplinary, administrative and criminal penalties. Although neither the Administrative Offences Code of the Russian Federation of 30 December 2001 nor the Criminal Code of the Russian Federation of 13 June 1996 currently contains any provisions specifically relating to such violations; general provisions and sanctions may be applicable. Liability Russian law establishes various types of liability (including civil, administrative and criminal), under which penalties may be imposed by a court on companies in the coal mining industry and their officials. These include: (1) depending on the severity of the offence, violation of the industrial safety rules and/or licence terms with respect to the operation of HPF is punishable with a fine on the company of up to one million roubles and suspension of the companys operations by a local court for up to 90 days. In case of severe injury or death due to a violation of the safety rules on highly explosive facilities or the mining safety rules, company officers may be punished with up to 7 years of imprisonment; (2) non-fulfilment of requirements on gas removal is punishable with a fine on the company of up to one million roubles; (3) breach of the labour regulations or the rules on occupational health and safety may lead to disqualification of the company officer responsible for labour and employment matters for up to 3 years and suspension of the companys operations by a local court for up to 90 days. In case of severe injury or death due to such violation, the company officer responsible for labour and employment matters may be punished with imprisonment for up to 4 years; (4) in case of injury or death caused by an accident at HPF, the company or other person operating the HPF are obligated to pay compensation (i) of two million roubles in case of death; or (ii) commensurate with the nature and severity of the injury, but not more than two million roubles;

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(5) violation of the environmental regulations in the course of construction activities is punishable with a fine of up to 100,000 roubles, and in the event of a material change of the background level of radiation, injury to people or mass death of livestock, the company officer responsible for operations and environmental matters may be punished with up to five years imprisonment; (6) violation of the environmental, sanitary and epidemiological regulations in the course of operations with hazardous waste and materials is punishable with a fine of up to 250,000 roubles or suspension of the companys operations by a local court for up to 90 days, and in the event of death or mass illness the company official responsible for operations and environmental matters may be punished with up to 8 years imprisonment; (7) violation of the requirements on environmental review of construction is punishable with a fine of up to 150,000 roubles; (8) violation of the requirements on protection of the subsoil is punishable with a fine of up to 500,000 roubles; (9) violation of the requirements on rational use of the subsoil is punishable with a fine of up to one million roubles; and (10) violation of the rules and requirements on exploration of the subsoil is punishable with a fine of up to 500,000 roubles. Pursuant to the Industrial Safety Law, Rostekhnadzor has the power to suspend operations at HPF without obtaining a court order in the event of an accident or a change of circumstances having a material impact on industrial safety. The Ministry of Natural Resources, Rosprirodnadzor and other authorities, individuals and public and non-governmental organisations have the right to initiate lawsuits claiming compensation for damage to the environment caused by a companys operations. The statute of limitations for such lawsuits is 20 years.

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THE ISSUER General Raspadskaya Securities Limited (the Issuer) was incorporated in Ireland on 4 April 2007, with registered number 437417 as a private company with limited liability under the Companies Acts 1963 - 2006 (the Companies Acts). The registered office of the Issuer is 5 Harbourmaster Place, IFSC, Dublin 1, Ireland and its phone number is +353 1 680 6000. Principal Activities The principal objects of the Issuer are set forth in clause 2 of its Memorandum of Association (as currently in effect) and permit the Issuer, inter alia, to lend money and give credit, secured or unsecured, to issue debentures and otherwise to borrow or raise money and to grant security over its property for the performance of its obligations or the payment of money. The Issuer is organised as a special purpose company. The Issuer was established to raise capital by the issue of debt securities and to use an amount equal to the proceeds of each such issuance to make loans to Raspadskaya Open Joint-Stock Company. Business Activity Since its incorporation, the Issuer has not engaged in any material activities other than those incidental to its registration as a private company under the Companies Acts and those related to: (i) the authorisation and issue of the 7.5 per cent. loan participation notes in the amount of US$300 million on 22 May 2007 (the 2007 Notes), the granting of the related loan to the Company pursuant to the 2007 Loan Agreement (the 2007 Loan) and activities incidental to the exercise of its rights and compliance with its obligations under the 2007 Notes, the subscription agreement, the agency agreement and the trust deed and the other documents and agreements entered into in connection with the issue of the 2007 Notes and the 2007 Loan; and (ii) the authorisation and issue of the Notes, granting of the Loan and the other documents and agreements entered into in connection with the issue of the Notes and the Loan. So long as any of the Notes remain outstanding, the Issuer will be subject to the restrictions set out in Condition 3 and the Trust Deed. The Issuer has no employees. The Issuer has no material assets other than such fees (as agreed) payable to it in connection with the issue of the 2007 Notes and the Notes and the assets upon which the 2007 Notes and the Notes are secured. Save in respect of the fees generated in connection with the issue of the Notes, any related profits and the proceeds of any deposits and investments made from such fees, the Issuer will not accumulate any surpluses. Share Capital and Shareholders The authorised share capital of the Issuer is A1 made up of 1 ordinary share of par value A1 (the Share). The Issuer has issued 1 Share, which is fully paid and is held on trust by or on behalf of Deutsche International Finance (Ireland) Limited (the Share Trustee) under the terms of a declaration of trust (the Declaration of Trust) dated 16 April 2007, under which the Share Trustee holds the Share on trust for charity. The Share Trustee has no beneficial interest in and derives no benefit (other than any fees for acting as Share Trustee) from its holding of the Share. The Share Trustee will apply any income derived from the Issuer solely for the above purposes. Corporate Services Provider Deutsche International Corporate Services (Ireland) Limited (the Corporate Services Provider), an Irish company, acts as the corporate services provider for the Issuer. The office of the Corporate Services Provider serves as the general business office of the Issuer. Through the office and pursuant to the terms of the corporate services agreement entered into on 16 April 2007 between the Issuer and the Corporate Services Provider (the Corporate Services Agreement), the Corporate Services Provider performs various management functions on behalf of the Issuer, including the provision of certain clerical, reporting, accounting, administrative and other services until termination of the Corporate Services Agreement. In consideration of the foregoing, the Corporate Services Provider receives various fees and other charges payable by the Issuer at rates agreed upon from time to time plus expenses. The terms of the Corporate

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Services Agreement provide that either party may terminate the Corporate Services Agreement upon the occurrence of certain stated events, including any material breach by the other party of its obligations under the Corporate Services Agreement which is either incapable of remedy or which is not cured within 30 days from the date on which it was notified of such breach. In addition, either party may terminate the Corporate Services Agreement at any time by giving not less than 90 days written notice to the other party. The Corporate Services Agreement contains provisions for the appointment of a replacement corporate services provider if necessary. The Corporate Services Providers principal office is 5 Harbourmaster Place, IFSC, Dublin 1, Ireland. Directors and Company Secretary The Issuers Articles of Association provide that the board of directors of the Issuer will consist of at least two directors. The directors of the Issuer and their business addresses are as follows: Carmel Naughton of 5 Harbourmaster Place, IFSC, Dublin 1, Ireland Eimir McGrath of 5 Harbourmaster Place, IFSC, Dublin 1, Ireland The Company Secretary is Deutsche International Corporate Services (Ireland) Limited. The directors do not hold any direct, indirect, beneficial or economic interest in any of the Shares. The directorship of the directors is provided as part of the Corporate Services Providers overall corporate administration services provided to the Issuer pursuant to the Corporate Services Agreement. The directors of the Issuer may engage in other activities and have other interests, which may conflict with the interests of the Issuer. Recent Developments Save as disclosed herein, there has been no material adverse change in the financial position or prospects of the Issuer since the date of its incorporation. Save for the issue of the 2007 Notes and the Notes described above and their related arrangements, the Issuer has no borrowings or indebtedness in the nature of borrowings (including loan capital issued or created but unissued), term loans, liabilities under acceptances or acceptance credits, mortgages, charges or guarantees or other contingent liabilities. Financial Statements The Issuer published its most recent financial statements in respect of the financial year ending on 31 December 2010. The Issuer will not prepare interim financial statements. The financial year of the Issuer ends on 31 December in each year. Each year, a copy of the audited profit and loss account and balance sheet of the Issuer together with a report of the directors and the auditors thereon is required to be filed in the Irish Companies Registration Office within 28 days of the annual return date of the Issuer and is available for inspection. The profit and loss account and balance sheet can be obtained free of charge from the registered office of the Issuer. The Issuer must ensure that an annual general meeting is held in each calendar year. The auditors of the Issuer are Ernst and Young Chartered Accountants of Ernst & Young Building, Harcourt Centre, Harcourt Street, Dublin 2, Ireland who are chartered accountants and are members of the Institute of Chartered Accountants in Ireland and registered auditors qualified to practise in Ireland.

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LOAN AGREEMENT The following is the text of the Loan Agreement entered into between the Company and the Issuer. LOAN AGREEMENT, dated 20 April 2012 BETWEEN: (1) OPEN JOINT-STOCK COMPANY RASPADSKAYA, an open joint-stock company established under the laws of the Russian Federation whose registered office is at Mira Street, 106, 652870 Mezhdurechensk, Russian Federation (Raspadskaya); and RASPADSKAYA SECURITIES LIMITED, a private limited company established under the laws of Ireland whose registered office is at 5 Harbourmaster Place, IFSC, Dublin 1, Ireland (the Lender).

(2)

WHEREAS: (A) The Lender has at the request of Raspadskaya agreed to make available to Raspadskaya a loan facility in the amount of U.S.$400,000,000 on the terms and subject to the conditions of this Agreement.
IT IS HEREBY AGREED

NOW 1.

as follows:

DEFINITIONS

AND INTERPRETATION

Definitions 1.1 In this Agreement (including the recitals), the following terms shall have the meanings indicated:

Account means the account in the name of the Lender with the Principal Paying Agent, account number 11640453 (or such other account as may from time to time be agreed by the Lender with the Trustee and Raspadskaya pursuant to the Trust Deed and notified to Raspadskaya in writing at least 5 Business Days in advance of such change); Accounts Regulation means Article 3 of Regulation (EC) No. 1606/2002; Advance means the advance to be made under Clause 3 of the sum equal to the amount of the Facility; Affiliates of any specified person means any other person, directly or indirectly, controlling or controlled by or under direct or indirect control with such specified person. For the purposes of this definition, control when used with respect to any person means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms controlling and controlled have meanings correlative to the foregoing; Agency means any agency, authority, central bank, department, committee, government, legislature, minister, ministry, official or public or statutory person (whether autonomous or not); Aggregate Subsidiary Indebtedness means the aggregate amount of all Indebtedness of Subsidiaries of Raspadskaya (without duplication (and without limiting the generality of the foregoing, calculating as one item of Indebtedness any Indebtedness in respect of which more than one Subsidiary is obligor) and excluding (i) Indebtedness of Raspadskaya and (ii) Indebtedness of a Subsidiary of Raspadskaya owing solely to Raspadskaya or a Subsidiary of Raspadskaya), after giving effect on a pro forma basis to the incurrence of the Indebtedness of a Subsidiary of Raspadskaya the permissibility of which is then measured, the incurrence or repayment of any Indebtedness of Raspadskaya or of the Subsidiaries of Raspadskaya on or after the first day of the Measurement Period relevant for such calculation and, in each case, the receipt and application of the proceeds therefrom; Agreement means this Agreement as originally executed or as it may be amended from time to time; Approved Jurisdiction means the United States of America, Russia and any member state of the European Union as constituted on the Closing Date provided that such member state has a long-term debt rating of A2 or higher by Moodys or A- or higher by S&P or A- or higher from Fitch or the equivalent rating category of another internationally recognised rating agency;

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Asset Acquisition means (i) an Investment by Raspadskaya or any Subsidiary of Raspadskaya in any other person pursuant to which such person shall become a Subsidiary or shall be consolidated or merged with Raspadskaya or any Subsidiary of Raspadskaya or (ii) the acquisition by Raspadskaya or any Subsidiary of Raspadskaya of assets of any person which constitute all or substantially all of the assets of such person or which comprise a division or line of business of such person; Asset Sale means any lease, sale, sale and lease-back, transfer or other disposition either in one transaction or in a series of related transactions, by Raspadskaya or any of its Subsidiaries to a person that is not part of the Group, of any Production Assets the value of which exceeds 10% of the total Production Assets of the Group in any 12-month period (determined in each case by reference to the most recent publicly available audited annual financial statements or reviewed interim financial statements of Raspadskaya prepared in accordance with IFRS); provided that Asset Sale shall not include sales or other dispositions of inventory or stock in trade in the ordinary course of business or assignments of or other arrangements over the rights or revenues arising from contracts for the sale of coal products at Fair Market Value; Auditors means the auditors of Raspadskayas IFRS financial statements (consolidated if the same are then prepared) or, if they are unable or unwilling to carry out any action requested of them under this Agreement, such other internationally recognised firm of accountants as may be nominated by Raspadskaya and approved in writing by the Lender for this purpose; Authorised Signatory means, in relation to Raspadskaya, any person who is duly authorised (in such manner as may be reasonably acceptable to the Lender) and in respect of whom the Lender has received a certificate signed by a director or another Authorised Signatory of Raspadskaya setting out the name and signature of such person and confirming such persons authority to act; Board of Directors means, as to any person, the board of directors or equivalent competent governing body of such person, or any duly authorised committee thereof; Business Day means a day on which, if on that day a payment is to be made hereunder, commercial banks generally are open for business in New York City, Moscow and in the city where the specified office of the Principal Paying Agent is located; Capital Stock means, with respect to any person, any and all shares, interests, participations, rights to purchase, warrants, options, or other equivalents (however designated) of capital stock of a corporation and any and all equivalent ownership interests in a person other than a corporation; in each case whether now outstanding or hereafter used; Closing Date means 27 April 2012; Consolidated Depreciation and Amortisation means the consolidated depreciation and amortisation of fixed assets and intangibles of Raspadskaya as shown in the latest available consolidated profit and loss account of Raspadskaya prepared in accordance with IFRS; Consolidated EBITDA means the Consolidated Profit (Loss) for any period, as adjusted by adding back, to the extent deducted in calculating Consolidated Profit (Loss), without duplication, for such period: (a) Consolidated Interest Expense; (b) Consolidated Income Tax Expense; (c) Consolidated Depreciation and Amortisation, in each case less any non-cash items increasing (decreasing) Consolidated Profit (Loss) for that period; Consolidated Income Tax Expense means in respect of any period the expenses of Raspadskaya in respect of income taxes as shown in the consolidated income statement of Raspadskaya for such period prepared in accordance with IFRS. Consolidated Indebtedness means at any date of determination (and without duplication) all consolidated Indebtedness of Raspadskaya as calculated in accordance with the then most recently published consolidated financial statements of Raspadskaya prepared in accordance with IFRS;

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Consolidated Interest Expense means, in relation to any period, the total of the following as calculated in accordance with the consolidated financial statements of Raspadskaya for such period prepared in accordance with IFRS: (a) the aggregate of cash and non-cash interest expense (net of interest income) for the relevant period (excluding any amortisation of debt issuance costs), including, without limitation (whether or not interest expense in accordance with IFRS): (i) (ii) (iii) (iv) (v) (vi) amortisation of debt discount; the net costs associated with hedging agreements (including amortisation of fees and discounts); the interest portion of any deferred payment obligations; all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers acceptance financing; accrued interest; interest due and payable under any guarantee, indemnity or equivalent arrangement; and

(vii) all capitalised interest of Raspadskaya and its Subsidiaries in each case determined on a consolidated basis in accordance with IFRS; and (b) the interest component of any capital lease obligation accrued during the relevant period.

Consolidated Profit (Loss) means in respect of any period the consolidated profit (loss) of Raspadskaya for such period as shown in the then most recent consolidated income statement of Raspadskaya prepared in accordance with IFRS adjusted, to the extent included in calculating such profit (loss), by excluding, without duplication: (a) (b) (c) (d) (e) (f) gains or losses, net of taxes (less all fees and expenses relating thereto), in respect of dispositions of assets other than in the ordinary course of business; any net foreign exchange gain or loss; any gain or loss on net monetary position; any share of the profit or loss of any associated company, associated undertaking or unconsolidated joint venture; the cumulative effect of changes in accounting principles; and any extraordinary items (net of taxes) including, without limitation, any loss or gain on impairment of fixed assets charged to the income statement.

Consolidated Tangible Assets means the total of Raspadskayas assets less (a) goodwill, trade names, trademarks, service marks, patents, licences, organisational expenses, research and development expenses, unamortised debt discount and expense, unamortised deferred charges and all other like intangible assets and (b) all write-ups of fixed assets, net of accumulated depreciation thereon, other than any revaluation made in accordance with IFRS, as reflected in (i) (subject to (ii) below) the then most recent audited consolidated balance sheet of Raspadskaya prepared in accordance with IFRS or, (ii) if a pro forma consolidated balance sheet of Raspadskaya prepared in accordance with IFRS and examined by the Auditors subsequent to the acquisition or disposal of any assets of Raspadskaya or any of its consolidated Subsidiaries in order to present the effect on Raspadskayas consolidated balance sheet of such acquisition or disposal as at a date which is more recent than the then most recent audited consolidated balance sheet of Raspadskaya prepared in accordance with IFRS is available, such pro forma consolidated balance sheet. For purposes of the calculation of Consolidated Tangible Assets, negative goodwill shall be assigned a value of zero; Credit Facilities means one or more credit, loan or debt facilities or lines of credit (which may be outstanding on the Closing Date or incurred thereafter) providing for loans or letters of credit or other credit support and, in each case, as such agreements may be amended, refinanced or otherwise restructured, in whole or in part from time to time, whether by the same or any other agent, lender or group of lenders or creditors;

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Currency Agreement means any foreign exchange contract, currency swap agreement or other similar agreement with respect to currency values; Definitive Note means the definitive notes in registered form representing the Notes, to be issued in limited circumstances pursuant to the Trust Deed; Disinterested Director means, with respect to any transaction or series of related transactions, a member of the Board of Directors of Raspadskaya who does not have any material direct or indirect financial interest in or with respect to such transaction or series of related transactions. A person shall not be ineligible to constitute a Disinterested Director solely as a result of such person owning any equity interests of Raspadskaya or any of its Subsidiaries or acting as an officer, director or employee of Raspadskaya or any of its Subsidiaries; Disposal Proceeds the proceeds received by Raspadskaya from an Asset Sale and an amount equal to such proceeds (less any costs incurred in relation to such Asset Sale); Dollars, U.S.$ and U.S. Dollars means the lawful currency of the United States of America; Environment means living organisms including the ecological systems of which they form part and the following media: (a) (b) (c) air (including air within natural or man made structures, whether above or below ground); water (including territorial, coastal and inland waters, water under or within land and water in drains and sewers) and/or land (including land under water);

Environmental Law means all applicable laws and regulations of any relevant jurisdiction which: (a) (b) (c) have as a purpose or effect the protection of, and/or prevention of harm or damage to, the Environment; provide remedies or compensation for harm or damage to the Environment; and relate to Hazardous Substances or health or safety matters;

Environmental Licence means any authorisation, consent, approval, resolution, licence, exemption, filing or registration required at any time under Environmental Law; euro means the single currency introduced at the start of the third stage of the European Economic and Monetary Union, and as defined in Article 2 of Council Regulation (EC) No 974/98 of 3 May 1998 on the introduction of the euro, as amended; Event of Default has the meaning assigned to such term in sub-Clause 11.1 hereof; Facility means the facility specified in Clause 2; Fair Market Value means the price that would be paid in an arms-length transaction between an informed and willing seller under no compulsion to sell and an informed and willing buyer under no compulsion to buy, as determined in good faith by the competent management body of Raspadskaya or the relevant competent management body of the Material Subsidiary of Raspadskaya (including a majority of the Disinterested Directors, if applicable) whose determination shall be conclusive if evidenced by a resolution of such relevant competent management body; Fiscal Period means any fiscal period for which Raspadskaya or the Group (if consolidated accounts are then prepared) has produced financial statements in accordance with IFRS which have either been audited or reviewed by the Auditors; Fitch means Fitch Ratings Ltd; Global Note means the global note in fully registered form, without interest coupons, representing the Notes to be issued pursuant to Clause 3 of the Trust Deed; Group means Raspadskaya and its Subsidiaries taken as a whole; Guarantee means, in relation to any Indebtedness of any person, any obligation of another person to pay such Indebtedness including (without limitation): (a) any obligation to purchase such Indebtedness;

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(b) (c) (d)

any obligation to lend money, to purchase or subscribe shares or other securities or to purchase assets or services in order to provide funds for the payment of such Indebtedness; any indemnity against the consequences of a default in the payment of such Indebtedness; and any other agreement to be responsible for such Indebtedness.

Hazardous Substances means any substance, material, pollutant, contaminant, chemical, waste, compound, or constituent, in any form, including without limitation, petroleum and petroleum products, subject to regulation which can give rise to liability under any Environmental Law; IFRS means the International Financial Reporting Standards (formerly International Accounting Standards) issued by the International Accounting Standards Board (IASB) and interpretations issued by the International Financial Reporting Interpretations Committee (as amended, supplemented or re-issued from time to time); Indebtedness means, without duplication, any indebtedness of any person for, or in respect of, moneys borrowed or raised, including without limitation: (a) (b) amounts raised by acceptance under any acceptance credit facility; amounts raised under any note purchase facility or the issue of bonds, notes, debentures, loan stock or similar instruments or pursuant to any issue of shares which are expressed to be redeemable either on a compulsory basis or at the option of the shareholder; the amount of any liability in respect of leases or hire purchase contracts which would, in accordance with applicable law and generally accepted accounting principles, be treated as finance or capital leases; the amount of any liability in respect of any purchase price for assets or services the payment of which is deferred for a period in excess of 30 days; or amounts raised under any other transaction (including, without limitation, under any Repurchase Agreement, any forward sale and any purchase agreement) having the commercial effect of a borrowing,

(c)

(d) (e)

and the amount of any liability in respect of any Guarantee for any of the items referred to above. For the avoidance of doubt, Indebtedness of any person does not include (i) trade account payables arising solely in the ordinary course of business of such person and maturing in less than 120 days (other than promissory notes and similar obligations incurred for the purpose of a borrowing) and (ii) for the purposes of Clause 10.18 only, any tax liability reported in the most recent balance sheet prepared in accordance with IFRS of such person. For the purpose of determining compliance with any U.S. Dollar-denominated restriction on Indebtedness, the U.S. Dollar Equivalent of Indebtedness denominated in another currency shall be calculated. The amount of Indebtedness of any person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and, with respect to contingent obligations as described above, the maximum liability upon the occurrence of the contingency giving rise to the obligation. Interest Payment Date means, 27 April and 27 October in each year, commencing on 27 October 2012; Investment means, with respect to any person, directly or indirectly, any advance (other than advances to customers in the ordinary course of business), loan (including guarantees), or other extension of credit (including guarantees) or capital contribution to (by means of any transfer of cash) or other property to others or any payment for property or services for the account or use of others, or any purchase, acquisition or ownership by such person of any Capital Stock, bonds, notes, debentures, or other securities (including, without limitation, any interests in any partnership or joint venture) or evidence of Indebtedness issued or owned by any person and all other items that would be classified as investments on a balance sheet prepared in accordance with IFRS; provided that: (a) (b) hedging obligations entered into in the ordinary course of business and in compliance with this Agreement; and endorsements of negotiable instruments in the ordinary course of business,

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shall in each case be deemed not to be an Investment. Leverage Ratio means the ratio of Consolidated Indebtedness to 12-month Consolidated EBITDA of Raspadskaya after giving effect on a pro forma basis to: (a) the incurrence of any Indebtedness the permissibility of which is then being measured, (b) the incurrence or repayment of any other Indebtedness on or after the first day of the Measurement Period relevant for such calculation and, in the case of (a) and (b), the receipt and application of the proceeds therefrom, (c) the exclusion of Consolidated EBITDA associated with any Asset Sales or (d) the inclusion of Consolidated EBITDA associated with any Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of the incurrence or assumption of Indebtedness), in the case of (c) and (d), on or after the first day of the Measurement Period relevant for such calculation, provided, however, that any such pro forma Consolidated EBITDA in respect of an Asset Acquisition may only be so included if such pro forma Consolidated EBITDA shall have been derived from financial statements of, or relating to or including, such acquired entity, that have been prepared in accordance with IFRS, U.S. GAAP, Russian GAAP or any body of accounting principles that has been determined by the European Commission to be equivalent to IFRS as provided in the Accounts Regulation (without regard to any modifications to such principles that may be required after the date of such financial statements in connection with or pursuant to such determination); Lien means any mortgage, pledge, encumbrance, easement, restriction, covenant, right-of-way, servitude, lien, charge or other security interest of any kind (including, without limitation, anything analogous to any of the foregoing under the laws of any jurisdiction and any conditional sale or other title retention agreement or lease in the nature thereof); Loan, at any time, means an amount equal to the aggregate principal amount of the Facility granted by the Lender pursuant to this Agreement; Material Adverse Effect means a material adverse effect on (a) the business, property, condition (financial or otherwise), operations or prospects of Raspadskaya or the Group or (b) Raspadskayas ability to perform its obligations under this Agreement or (c) the validity, legality or enforceability of this Agreement or the rights or remedies of the Lender under this Agreement; Material Subsidiary at any relevant time means a Subsidiary of Raspadskaya: (a) whose total consolidated assets represent not less than 10 per cent. of the consolidated total assets of Raspadskaya or whose gross consolidated revenues represent not less than 10 per cent. of the gross consolidated revenues of Raspadskaya, all as calculated by reference to the then latest audited financial statements (consolidated or, as the case may be, unconsolidated) of such Subsidiary and the then latest audited IFRS consolidated financial statements of Raspadskaya; or to which is transferred the whole or substantially the whole of the undertaking and assets of a Subsidiary of Raspadskaya which immediately before the transfer was a Material Subsidiary.

(b)

Measurement Period means the most recently ended two semi-annual periods for which consolidated financial statements of Raspadskaya (or the other relevant person in respect of which the particular calculation is to be made, as the case may be) prepared in accordance with IFRS are available; Moodys means Moodys Investors Service, Inc; Noteholder means, in relation to a Note, the person in whose name such Note is for the time being registered in the register of Noteholders (or, in the case of a joint holding, the first named holder thereof); Notes means the U.S.$400,000,000 7.75 per cent. loan participation notes due 2017 proposed to be issued by the Lender pursuant to the Trust Deed for the purpose of funding the Loan; Obligations means all obligations at any time due, owing or incurred to the Lender by Raspadskaya under this Agreement, whether present or future, actual or contingent; Officers Certificate means a certificate signed by an officer of Raspadskaya who shall be the principal executive officer, a member of the management board, principal accounting officer or principal financial officer of Raspadskaya; Original Financial Statements means the audited consolidated financial statements of Raspadskaya as at and for the year ended 31 December 2011;

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Opinion of Counsel means a written opinion from international legal counsel who is reasonably acceptable to the Lender; Paying Agency Agreement means the paying agency agreement dated on or about the Closing Date, as amended, varied or supplemented relating to the Notes; Paying Agent shall have the meaning attributed to it in the Paying Agency Agreement; Permitted Lien means: (a) any Lien over or affecting any asset acquired by a member of the Group after the date hereof and subject to which such asset is acquired, if: (i) (ii) (b) such Lien was not created in contemplation of the acquisition of such asset by a member of the Group; and the amount thereby secured has not been increased in contemplation of, or since the date of, the acquisition of such asset by a member of the Group;

any Lien over or affecting any asset of any company which becomes a member of the Group after the date hereof, where such Lien is created prior to the date on which such company becomes a member of the Group, if: (i) (ii) such Lien was not created in contemplation of the acquisition of such company; and the amount thereby secured has not been increased in contemplation of, or since the date of, the acquisition of such company;

(c) (d) (e) (f) (g)

any netting or set-off arrangement entered into by any member of the Group in the normal course of its banking arrangements for the purpose of netting debit and credit balances; any Lien arising by operation of law and in the normal course of business; any Lien in existence on the date of this Agreement; any Lien granted by a Subsidiary of Raspadskaya in favour of Raspadskaya; Liens incurred, or pledges and deposits in connection with workers compensation, unemployment insurance and other social security benefits, and leases, appeal bonds and other obligations of like nature in the ordinary course of business; Liens for ad valorem, income or property Taxes or assessments and similar charges which either are not delinquent or are being contested in good faith by appropriate proceedings for which Raspadskaya has set aside in its books of account reserves to the extent required by IFRS, as consistently applied; easements, rights of way, restrictions (including zoning restrictions), reservations, permits, servitudes, minor defects or irregularities in title and other similar charges or encumbrances in each case not interfering in any material respect with the business of Raspadskaya and its Subsidiaries taken as a whole; (a) bankers Liens in respect of deposit accounts, (b) statutory landlords Liens, (c) deposits to secure the performance of bids, trade contracts, government contracts, leases, statutory obligations, surety and appeal bonds, performance and return-of-money bonds or liabilities to insurance carriers under insurance or self-insurance arrangements and other obligations of like nature (so long as, in each case with respect to items described in (a), (b) and (c) above of this paragraph (j), such Liens (X) do not secure obligations constituting Indebtedness for borrowed money and (Y) are incurred in the ordinary course of business), and (d) Liens arising from any judgment, decree or other order which does not constitute an Event of Default; Liens arising pursuant to any title transfer or retention of title arrangement entered into by a member of the Group in the normal course of its business activities on the counterpartys standard or usual terms; any Lien or Liens over the rights to receivables under any Product Delivery Contract, provided that at no time shall any such Lien or Liens, when aggregated with all other Lien or Liens over rights to receivables under other Product Delivery Contracts, be over more than

(h)

(i)

(j)

(k)

(l)

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50 per cent. of the receivables due under all such Product Delivery Contracts outstanding at such time; (m) any Lien on any property or assets of Raspadskaya or any Subsidiary of Raspadskaya securing Indebtedness incurred for the sole purpose of financing all or part of the acquisition, maintenance, repair or construction of such property or assets provided that (i) no such Lien shall extend to any other property or assets of Raspadskaya or any of its Subsidiaries, (ii) the aggregate principal amount of all Indebtedness secured by Liens under this paragraph does not exceed the purchase price of such property or assets (including customs duties, transport insurance, construction and installation costs and other incidental costs and expenses of purchase and any VAT or similar taxes thereon) and (iii) such Lien attaches to such property or assets concurrently with the maintenance or repair thereof or within 90 days after the acquisition or commencement of construction thereof, as the case may be; and any Lien or Liens other than the Lien or Liens falling within (a) to (m) above where the aggregate value of the assets or revenues subject to such Lien or Liens does not exceed U.S.$50,000,000;

(n)

person means any individual, company, corporation, firm, partnership, joint venture, association, organisation, state or agency of a state or other entity, whether or not having separate legal personality; Potential Event of Default means any event or circumstances which could with the giving of notice or the lapse of time become an Event of Default; Principal Paying Agent means Citibank, N.A., London Branch; Product Delivery Contract means any contract for the sale or delivery of coal and coal products and other products of the Group, entered into from time to time between Raspadskaya or any of its Material Subsidiaries and any other person in the ordinary course of business, Raspadskayas or such Material Subsidiarys business that is customary in the coal industry, including any commission agency contracts, any spot sale contract and any transportation or other contracts related thereto; Production Assets means property, plant and equipment of the Group determined in accordance with IFRS; Prospectus means the Prospectus to be dated on or about 23 April 2012 relating to the issue of the Notes; Rate of Interest has the meaning assigned to such term in Clause 4.1; Refinance means, in respect of any Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue other Indebtedness in exchange or replacement for, such Indebtedness in whole or in part and Refinanced and Refinancing shall be construed accordingly; Refinancing Indebtedness means Indebtedness of Raspadskaya or a Subsidiary of Raspadskaya incurred in exchange for, or the proceeds of which are used to Refinance in whole or in part, any Indebtedness of Raspadskaya or any Subsidiary of Raspadskaya (the Refinanced Indebtedness); provided that: (a) the principal amount (and accreted value, in the case of Indebtedness issued at a discount) of the Refinancing Indebtedness does not exceed the principal amount (and accreted value, as the case may be) of the Refinanced Indebtedness plus the amount of accrued and unpaid interest on the Refinanced Indebtedness, any reasonable premium paid to the holders of the Refinanced Indebtedness and reasonable expenses incurred in connection with the incurrence of the Refinancing Indebtedness; the obligor of Refinancing Indebtedness does not include any person (other than Raspadskaya) that is not an obligor of the Refinanced Indebtedness; if the Refinanced Indebtedness was subordinated in right of payment to the Loan, then such Refinancing Indebtedness, by its terms, is subordinate in right of payment to the Loan at least to the same extent as the Refinanced Indebtedness; the Refinancing Indebtedness has a final stated maturity either (i) no earlier than the Refinanced Indebtedness being repaid or amended or (ii) six months after the Repayment Date;

(b) (c)

(d)

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(e)

such Refinancing Indebtedness has a Weighted Average Life to Maturity at the time such Refinancing Indebtedness is incurred that is equal to or greater than the Weighted Average Life to Maturity of the portion of the Refinanced Indebtedness being Refinanced; and the proceeds of the Refinancing Indebtedness shall be used substantially concurrently with the incurrence thereof to Refinance the Refinanced Indebtedness;

(f)

Repayment Date means 27 April 2017; Repurchase Agreement means any repurchase agreement, buy/sell back agreement, reverse repurchase agreement or stock loan with respect to any securities, whether or not arising in the ordinary course of business; Reserved Rights has the meaning specified in the Trust Deed; Russian GAAP means Russian generally accepted accounting principles as in effect from time to time; S&P means Standard & Poors Ratings Services, a division of The McGraw-Hill Companies, Inc.; Same-Day Funds means Dollar funds settled through the New York Clearing House Interbank Payments System or such other funds for payment in Dollars as the Lender may at any time determine to be customary for the settlement of international transactions in New York City of the type contemplated hereby; Subscription Agreement means the subscription agreement dated the date hereof relating to the Notes; Subsidiary of any specified person means any corporation, partnership, joint venture, association or other business entity, whether now existing or hereafter organised or acquired, (a) in the case of a corporation, of which at least 50 per cent. of the total voting power of the voting stock is held by such firstnamed person and/or any of its Subsidiaries and such first-named person and/or any of its Subsidiaries has the power to direct the management, policies and affairs thereof; (b) in the case of a partnership, joint venture, association, or other business/entity, with respect to which such first-named person or any of its Subsidiaries has the power to direct or cause the direction of the management and policies of such entity by contract; or (c) if in accordance with IFRS such entity would be consolidated with the first-named person for financial statement purposes; Subsidiary Indebtedness Threshold means 30 per cent. of Consolidated Tangible Assets; Taxes means any taxes (including interest or penalties thereon) which are now or at any time hereafter imposed, assessed, charged, levied, collected, demanded, withheld or claimed by the Russian Federation, Ireland or any tax authority thereof or therein provided, however, that for the purposes of this definition the references to Ireland shall, upon the occurrence of a Relevant Event (as this term is defined in the Trust Deed), be deemed to be references to the jurisdiction in which the Trustee is domiciled for tax purposes; and the term Taxation shall be construed accordingly; Trust Deed means the trust deed to constitute the Notes for the equal and rateable benefit of the Noteholders to be dated on or about the Closing Date between the Lender and the Trustee as amended, varied or supplemented from time to time; Trustee means Citibank, N.A., London Branch as trustee under the Trust Deed and any successor thereto as provided thereunder; U.S. GAAP means United States generally accepted accounting principles as in effect from time to time; U.S. Dollar Equivalent means with respect to any amount denominated in a currency other than U.S. Dollars, at any time for the determination thereof, the amount of U.S. Dollars obtained by converting such other currency involved into U.S. Dollars at the spot rate for the purchase of U.S. Dollars with such other currency as most recently published under Currencies in the section of the Financial Times entitled Market Data or if no such spot rate or competing spot rates are published, such spot rate for the purchase of U.S. Dollars quoted within an alternative source of international foreign exchange currency data as is used by reputable market practitioners in the international foreign exchange market as the parties to this Loan Agreement may agree; and Weighted Average Life to Maturity when applied to any Indebtedness at any date, means the number of years obtained by dividing (a) the sum of the products obtained by multiplying (i) the amount of each then remaining instalment, sinking fund, serial maturity or other required payment of principal, including

144

payment at final maturity, in respect thereof by (ii) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment by (b) the then outstanding principal amount of such Indebtedness. Other Definitions 1.2 Unless the context otherwise requires, terms used in this Agreement which are not defined in this Agreement but which are defined in the Trust Deed, the Notes, the Paying Agency Agreement or the Subscription Agreement shall have the meanings assigned to such terms therein.

Interpretation 1.3 Unless the context or the express provisions of this Agreement otherwise require, the following shall govern the interpretation of this Agreement: (a) (b) (c) (d) (e) all references to Clause or sub-Clause are references to a Clause or sub-Clause of this Agreement. the terms hereof, herein and hereunder and other words of similar import shall mean this Agreement as a whole and not any particular part hereof. words importing the singular number include the plural and vice versa. all references to taxes include all present or future taxes, levies, imposts and duties of any nature and the terms tax and taxation shall be construed accordingly. the table of contents and the headings are for convenience only and shall not affect the construction hereof.

2.

FACILITY

Facility 2.1 On the terms and subject to the conditions set forth herein, the Lender hereby agrees to lend Raspadskaya, and Raspadskaya hereby agrees to borrow from the Lender, U.S.$400,000,000.

Purpose 2.2 The proceeds of the Loan will be used by Raspadskaya to repay its outstanding 7.5 per cent. loan participation notes in the amount of U.S.$300,000,000 due in May 2012 and for general corporate purposes, but the Lender shall not be concerned with the application thereof.

Facility Fee 2.3 In consideration of the Lender making the Advance to Raspadskaya, Raspadskaya shall pay a fee to the Lender in connection with the arrangement of the Facility as set out in an executed annex hereto in the form set out in the Annex (the Facility Fee). DRAWDOWN

3.

Drawdown 3.1 On the terms and subject to the conditions set forth herein, on the Closing Date the Lender shall make the Advance to Raspadskaya and Raspadskaya shall make a single drawing in the full amount of the Facility, subject to sub-Clause 3.2.

Payment of the Facility Fee 3.2 Raspadskaya agrees to pay the Facility Fee to the Lender in Same-Day Funds by 4.30 p.m. (London time) on the Business Day prior to the Closing Date to the account in the name of the Lender with Citibank, N.A., London Branch, account number 11722751. In the event that the Lender has not received from Raspadskaya by 4.30 p.m. (London time) on the Business Day prior to the Closing Date an amount in respect of the Facility Fee, Raspadskaya agrees that an amount equal to the Facility Fee may be deducted from the amount of the Advance.

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Disbursement 3.3 Subject to the conditions set forth herein, on the Closing Date the Lender shall transfer the amount of the Advance (less any amount to be deducted (if any) in accordance with sub-Clause 3.2 above) to Raspadskayas account number 40702840526070200040, SWIFT SABRRUMMNH1 with SBERBANK (Sibirsky Head Office).

Ongoing Fees and Expenses 3.4 In consideration of the Lender supporting the Facility as a continuing facility and managing the Account, Raspadskaya shall pay to the Lender each year or on demand an additional fee. This additional fee should be calculated taking into account all properly incurred and documented costs, commissions and taxes of the Lender in connection with supporting the Facility (including, without limitation, any taxes and any properly incurred and documented corporate service provider fees, legal fees, listing fees, audit fees and any expenses incurred in order to maintain the Lender as a validly incorporated company and any expenses required to cover the Lenders anticipated winding-up expenses). Payments to the Lender referred to in this Clause 3.4 shall be made by Raspadskaya as soon as reasonably practicable and in any event no later than 15 days following receipt of an original invoice from the Lender setting out in detail the nature and calculation of the relevant payment. For the avoidance of doubt, any such invoice from the Lender may be denominated in any currency including, for the avoidance of doubt and without limitation, U.S. Dollars and euro and shall be paid by Raspadskaya in the currency of such invoice. INTEREST

4.

Rate of interest 4.1 Raspadskaya will pay interest in U.S. Dollars to the Lender on the outstanding principal amount of the Loan from time to time hereunder at the rate of 7.75 per cent. per annum (the Rate of Interest).

Payment 4.2 Interest at the Rate of Interest shall accrue from day to day, starting from (and including) the Closing Date and shall be paid in arrear not later than 4.30 p.m. (London time) one Business Day prior to each Interest Payment Date. Interest on the Loan will cease to accrue from the due date for repayment thereof unless payment of principal is improperly withheld or refused, in which event interest will continue to accrue (before or after any judgment) at the Rate of Interest to but excluding the date on which payment in full of the principal thereof is made. If interest is required to be calculated for a period of less than one year, it will be calculated on the basis of a 360 day year consisting of 12 months of 30 days each and, in the case of an incomplete month, the number of actual days elapsed. REPAYMENT
AND

5.

PREPAYMENT

Repayment 5.1 Except as otherwise provided herein, Raspadskaya shall repay the Loan not later than 4.30 p.m. (London time) one Business Day prior to the Repayment Date.

Special Prepayment 5.2 If, (i) either (a) as a result of the application of any amendments to or change in the double tax treaty between the Russian Federation and Ireland or the laws or regulations of the Russian Federation or Ireland or of any political sub-division thereof or any authority having power to tax therein (including as a result of a judgment of a court of competent jurisdiction) or a change in the application or official interpretation of such laws or regulations which change or amendment becomes effective on or after the date of this Agreement or (b) as a result of the enforcement of the security provided for in the Trust Deed, Raspadskaya would thereby be required to make or increase any payment due hereunder as provided in sub-Clauses 6.2 or 6.3, or (ii) (for whatever reason) Raspadskaya would have to or has been required to pay additional amounts pursuant to Clause 8, then Raspadskaya may (without premium or penalty), upon not less than 30 days notice to the Lender (which notice shall be irrevocable), prepay the Loan in whole (but not in part).

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Illegality 5.3 If, at any time, by reason of the introduction of any change after the date of this Agreement in any applicable law, regulation, regulatory requirement or directive of any agency of any state the Lender reasonably determines (setting out in reasonable detail the nature and extent of the relevant circumstances) (following receipt of such determination Raspadskaya may request from the Lender an Opinion of Counsel with the cost of such Opinion of Counsel being borne solely by Raspadskaya) that it is or would be unlawful or contrary to such applicable law, regulation, regulatory requirement or directive for the Lender to allow all or part of the Loan or the Notes to remain outstanding or for the Lender to maintain or give effect to any of its obligations in connection with this Agreement or the Notes and/or to charge or receive or to be paid interest at the rate then applicable to the Loan or the Notes, then upon notice by the Lender to Raspadskaya in writing, Raspadskaya and the Lender shall consult in good faith as to a basis which eliminates the application of such circumstances; provided, however, that the Lender shall be under no obligation to continue such consultation if a basis has not been determined within 30 days of the date on which it so notified Raspadskaya. If such a basis has not been determined within the 30 days, then upon notice by the Lender to Raspadskaya in writing, Raspadskaya shall prepay the Loan in whole (but not in part) on the next Interest Payment Date or on such earlier date as the Lender shall certify (acting reasonably) on not less than 15 days notice to be necessary to comply with such requirements.

Prepayment of Loan Upon Redemption and Cancellation of Notes 5.4 Raspadskaya or any member of the Group may from time to time, in accordance with the terms and conditions of the Notes, purchase Notes in the open market or by tender or by a private agreement at any price. Raspadskaya or any such Subsidiary may from time to time deliver to the Lender Definitive Notes, having an aggregate principal value of at least U.S.$1,000,000, together with a request (a Request) for the Lender to present such Definitive Notes to the Principal Paying Agent for early redemption and cancellation or from time to time procure the delivery to the Principal Paying Agent of instructions (Instructions) to redeem and thereafter cancel a specified aggregate principal amount of Notes (being at least U.S.$1,000,000) represented by a Global Note in each case upon not less than 30 days notice. Any Instructions shall be accompanied by evidence satisfactory to the Principal Paying Agent that Raspadskaya or any such Subsidiary is entitled to give such Instructions (which, for the avoidance of doubt, will be satisfied by the provision of copies of account entries in the records of a clearing system and associated nominees (if relevant) reflecting Raspadskayas or such Subsidiarys beneficial interest in such part of the Global Note being delivered representing the Notes). Upon receipt of a Request the Lender shall request and Raspadskaya shall procure that the relevant clearing system requests the Principal Paying Agent to redeem and cancel such Notes on the date specified in the Request and Raspadskaya shall promptly procure that the account entries in the records of the relevant clearing system reflecting Raspadskayas or such Subsidiarys beneficial interest in such part of the Global Note being delivered are updated to reflect such cancellation. Raspadskaya shall, on the date specified in any Request or, as the case may be, Instructions, prepay such amount of the Loan as corresponds to the aggregate principal amount of Notes presented with a Request or specified in Instructions. Upon any such cancellation, the principal amount of the Loan corresponding to the principal amount of such Notes shall be deemed to be prepaid for all purposes as of the date of such cancellation and no further payment shall be made or required to be made by Raspadskaya in respect of such amounts.

Payment of Other Amounts 5.5 If the Loan is to be prepaid by Raspadskaya pursuant to any of the provisions of Clauses 5.2, or 5.3, Raspadskaya shall, simultaneously with such prepayment or reduction, pay to the Lender accrued interest thereon to the date of such prepayment and all other sums payable by Raspadskaya pursuant to this Agreement in relation to the prepaid amount.

Provisions Exclusive 5.6 Raspadskaya may not voluntarily prepay the Loan except in accordance with the express terms of this Agreement. Any amount prepaid may not be reborrowed.

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6.

PAYMENTS

Making of Payments 6.1 All payments of principal and interest and other amounts payable under Clause 6.2 hereof (other than those in respect of Reserved Rights) to be made by Raspadskaya under this Agreement shall be made unconditionally by credit transfer to the Lender not later than 4.30 p.m. (London time) one Business Day prior to each Interest Payment Date or the Repayment Date (as the case may be) in Same-Day Funds to the Account, or as the Trustee may otherwise direct following the occurrence of a Relevant Event (as defined in the Trust Deed). The Lender agrees with Raspadskaya that the Lender will not deposit any other monies into the Account and that no withdrawals shall be made from the Account other than for payments to be made in accordance with the Trust Deed and Paying Agency Agreement.

No Set-Off, Counterclaim or Withholding; Gross-Up 6.2 All payments to be made by Raspadskaya under this Agreement shall be (i) made in full without set-off or counterclaim and (except to the extent required by law) free and clear of and without deduction for or on account of any Taxes and (ii) made only from the Russian Federation, Ireland or such other jurisdiction which would not require any deductions or withholding from any such payment. If Raspadskaya shall be required by applicable law to make any deduction or withholding from any payment under this Agreement for or on account of any such Taxes, it shall, on the due date of such payment, increase any payment due hereunder to such amount as may be necessary to ensure that the Lender receives a net amount in Dollars equal to the full amount which it would have received had payment not been made subject to such Taxes, shall account to the relevant authorities for the relevant amount of such Taxes so withheld or deducted within the time allowed for such payment under the applicable law and shall deliver to the Lender without undue delay evidence satisfactory to the Lender of such deduction or withholding and of the accounting therefor to the relevant taxing authority. If the Lender pays any amount in respect of such Taxes, including penalties or interest, Raspadskaya shall reimburse the Lender in Dollars, for such payment on written, original demand, such payment to be properly documented. For the avoidance of doubt, this Clause 6.2 is without prejudice to the obligation of the Lender to obtain a certificate from the competent Irish authorities pursuant to Clause 6.6.

Withholding on the Notes 6.3 If the Lender notifies Raspadskaya (setting out in reasonable detail the nature and extent of the obligation with such evidence that Raspadskaya may reasonably require) that it has become obliged to make any withholding or deduction for or on account of any present or future taxes, assessments or governmental charges of whatever nature imposed or levied, collected, withheld or assessed by or on behalf of Ireland or any political subdivision or any authority thereof or therein having the power to tax from any payment which it is obliged to make, or would otherwise be obliged to make but for the imposition of any such withholding or deduction for or on account of any such taxes, under or in respect of the Notes, Raspadskaya agrees to pay into the Account for the benefit of the Lender, not later than 4.30 p.m. (London time) one Business Day prior to the date on which payment is due to the Noteholders in Same-Day Funds, such additional amounts as are equal to the said additional amounts which the Lender would be required to pay in order that the net amounts received by the Noteholders after such withholding or deduction will equal the respective amounts which would have been received by the Noteholders in the absence of such withholding or deduction; provided, however, that the Lender shall immediately upon receipt from any Paying Agent of the reimbursement of any sums paid pursuant to this provision, to the extent that the Noteholders, as the case may be, are not entitled to such additional amounts pursuant to the terms and conditions of the Notes, pay such additional amounts to Raspadskaya (it being understood that neither the Lender, nor the Principal Paying Agent nor any Paying Agent shall have any obligation to determine whether any Noteholder is entitled to such additional amounts). If the Lender becomes subject to any taxing jurisdiction other than or in addition to Ireland, references in this Clause 6.3 to Ireland shall be construed as references to Ireland and/or such other jurisdiction.

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Reimbursement 6.4 To the extent that the Lender subsequently obtains or uses any tax credit or allowance or other reimbursements relating to a deduction or withholding with respect to which Raspadskaya has made a payment pursuant to this Clause 6, the Lender shall promptly pay to Raspadskaya so much of the benefit it received as will leave the Lender in substantially the same position as it would have been had no additional amount been required to be paid by Raspadskaya pursuant to this Clause 6; provided, however, that the question of whether any such benefit has been received, and accordingly, whether any payment should be made to Raspadskaya, the amount of any such payment and the timing of any such payment, shall be determined reasonably by the Lender.

Mitigation 6.5 If at any time either party hereto becomes aware of circumstances which would or might, then or thereafter, give rise to an obligation on the part of Raspadskaya to make any deduction, withholding or payment as described in sub-Clauses 6.2 or 6.3, then, without in any way limiting, reducing or otherwise qualifying the Lenders rights, or Raspadskayas obligations, under such sub-Clauses, such party shall as soon as reasonably practicable upon becoming aware of such circumstances notify the other party, and, thereupon the parties shall consider and consult with each other in good faith with a view to finding, agreeing upon and implementing a method or methods by which any such obligation may be avoided or mitigated and, to the extent that both parties can do so without taking any action which in the reasonable opinion of such party is prejudicial to its own position, take such reasonable steps as may be available to it to avoid such obligation or mitigate the effect of such circumstances. Raspadskaya agrees to reimburse the Lender upon receipt of an original demand for payment for all properly documented and incurred costs and expenses (including but not limited to legal fees) incurred by the Lender in connection with this sub-Clause.

Tax Treaty Relief 6.6 The Lender shall once in each calendar year, provided that Raspadskaya so requests no earlier than 30 Business Days but no later than 20 Business Days prior to the first Interest Payment Date in each calendar year, provide to Raspadskaya and at the expense of Raspadskaya no later than five Business Days prior to such first Interest Payment Date in each calendar year a tax residency certificate issued by the competent authorities of Ireland confirming that the Lender is resident for tax purposes in Ireland for the purposes of the Agreement between Ireland and the Russian Federation for the avoidance of double taxation with respect to taxes on income. At the cost of Raspadskaya, the residency certificate shall be apostilled at the Irish Department of Foreign Affairs or legalised. The Lender shall not be responsible for any failure to provide, or any delays in providing, such tax residency certificate as a result of any action or inaction of any authority of Ireland, but shall notify Raspadskaya as soon as practicable about any such failure or delay with an indication of the actions taken by the Lender to obtain such tax residency certificate. If Russian legislation regulating the procedures for obtaining an exemption from Russian withholding tax on income or interpretation thereof by the relevant competent authorities did change, then the procedure referred to in Clause 6.6 will be deemed changed accordingly and the Lender shall (subject to being informed of any such changes by Raspadskaya) use its reasonable and timely efforts to assist Raspadskaya to obtain relief from such tax pursuant to the double taxation treaty between the Russian Federation and Ireland. CONDITIONS PRECEDENT

6.7

7.

The obligation of the Lender to make the Advance (less any deduction (if any) in accordance with sub-Clause 3.2) shall be subject to the further conditions precedent that as of the Closing Date (a) the representations and warranties made and given by Raspadskaya in Clause 9 shall be true and accurate as if made and given on the Closing Date with respect to the facts and circumstances then existing, (b) no Potential Event of Default or Event of Default shall have occurred and be continuing, (c) Raspadskaya shall not be in breach of any of the terms, conditions and provisions of this Agreement, (d) the Subscription Agreement, the Trust Deed and the Paying Agency Agreement shall have been executed and delivered and (e) the Lender shall have received the proceeds of the issue of the Notes pursuant to the Subscription Agreement.

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8. 8.1

CHANGE

IN

LAW

OR

PRACTICES; INCREASE

IN

COST

Compensation In the event that after the date of this Agreement there is any change in or introduction of any tax, law, regulation, regulatory requirement or official directive (whether or not having the force of law but, if not having the force of law, the observance of which is in accordance with the generally accepted financial practice of financial institutions in the country concerned) or in the interpretation or application thereof by any person charged with the administration thereof and/or any compliance by the Lender in respect of the Loan or the Facility with any request, policy or guideline (whether or not having the force of law but, if not having the force of law, the observances of which is in accordance with the generally accepted financial practice of financial institutions in the country concerned) from or of any central or other fiscal, monetary or other authority, agency or any official of any such authority, which: (a) subjects or will subject the Lender to any Taxes with respect to payments of principal of or interest on the Loan or any other amount payable under this Agreement (other than any Taxes payable by the Lender on its overall net income (except to the extent that the Lender is unable to obtain a deduction for tax purposes on payments to the Noteholders which offsets any tax liability on equivalent amounts received under this Agreement) or any Taxes referred to in sub-Clauses 6.2 or 6.3); or increases or will increase the taxation of or changes or will change the basis of taxation of payments to the Lender of principal of or interest on the Loan or any other amount payable under this Agreement (other than any such increase or change which arises by reason of any increase in the rate of tax payable by the Lender on its overall net income (except to the extent that the Lender is unable to obtain a deduction for tax purposes on payments to the Noteholders which offsets any tax liability on equivalent amounts received under this Agreement) or as a result of any Taxes referred to in sub-Clauses 6.2 or 6.3); or imposes or will impose on the Lender any other condition affecting this Agreement, the Facility or the Loan, and if as a result of any of the foregoing: (i) (ii) (iii) the cost to the Lender of making, funding or maintaining the Loan or the Facility is increased; or the amount of principal, interest or other amount payable to or received by the Lender hereunder is reduced; or the Lender makes any payment or foregoes any interest or other return on or calculated by reference to the gross amount of any sum receivable by it from Raspadskaya hereunder or makes any payment or foregoes any interest or other return on or calculated by reference to the gross amount of the Loan, (A) the Lender shall, as soon as practicable after becoming aware of such increased cost, reduced amount or payment made or foregone, give written notice to Raspadskaya, together with a certificate signed by the Lender describing in reasonable detail the introduction or change or request which has occurred and the country or jurisdiction concerned and the nature and date thereof and demonstrating the connection between such introduction, change or request and such increased cost, reduced amount or payment made or foregone, and setting out in reasonable detail the basis on which such amount has been calculated, and all relevant supporting documents evidencing the matters set out in such certificates; and Raspadskaya, in the case of clauses (i) and (iii) above, shall on written demand in original form by the Lender, pay to the Lender such properly documented additional amount as shall be necessary to compensate the Lender for such increased cost, and, in the case of clause (ii) above, at the time the amount so reduced would otherwise have been payable, pay to the Lender such additional amount as shall be necessary to compensate the Lender for such reduction, payment or foregone interest or other return; provided, however, the amount of such increased cost, reduced amount or payment made or foregone shall be

(b)

(c)

then subject to the following, and in each such case:

(B)

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deemed not to exceed an amount equal to the proportion thereof which is directly attributable to this Agreement, provided that this sub-Clause 8.1 will not apply in respect of any matter to the extent that the Lender has already been compensated under sub-Clauses 6.2 or 6.3. Mitigation 8.2 In the event that the Lender becomes entitled to make a claim pursuant to sub-Clause 8.1, the Lender shall consult in good faith with Raspadskaya and shall use reasonable efforts (based on the Lenders reasonable interpretation of any relevant tax, law, regulation, requirement, official directive, request, policy or guideline) to reduce, in whole or in part, Raspadskayas obligations to pay any properly documented additional amount pursuant to such sub-Clause received in original form, except that nothing in this sub-Clause 8.2 shall obligate the Lender to incur any costs or expenses in taking any action which, in the reasonable opinion of the Lender, is prejudicial to its interests. REPRESENTATIONS
AND

9. 9.1

WARRANTIES

Raspadskayas Representations and Warranties Raspadskaya represents and warrants to the Lender as follows, with the intent that such shall form the basis of this Agreement at the date hereof and shall be deemed to be repeated by Raspadskaya on the Closing Date: (a) Raspadskaya and each of its Subsidiaries is duly organised and incorporated and validly existing under the laws of the Russian Federation or its jurisdiction of incorporation, as the case may be, is not in liquidation or receivership and has the power and legal right to own its property, to conduct its business as currently conducted and, to enter into and to perform its obligations under this Agreement and to borrow the Advance; Raspadskaya has taken all necessary corporate, legal and other action required to authorise the borrowing of the Advance on the terms and subject to the conditions of this Agreement and to authorise the execution and delivery of this Agreement and all other documents to be executed and/or delivered by it in connection with this Agreement, and the performance of this Agreement in accordance with its terms; this Agreement has been duly executed by Raspadskaya and constitutes a legal, valid and binding obligation of Raspadskaya enforceable against Raspadskaya in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium and similar laws affecting creditors rights generally, and subject, as to enforceability, (i) to general principles of equity, (ii) to the fact that the gross-up provisions contained in Clause 6.2 or 6.3 may not be enforceable under Russian law and (iii) with respect to the enforceability of a judgment, to the laws of the relevant jurisdiction where such judgment must be enforced and whether there is a treaty in force relating to the mutual recognition of foreign judgments; the execution, delivery and performance of this Agreement by Raspadskaya will not conflict with or result in any breach or violation of (i) any applicable law or regulation or any order of any governmental, judicial, arbitral or public body or authority in the Russian Federation, (ii) the constitutive documents, rules and regulations of Raspadskaya or (iii) any agreement or other undertaking or instrument to which Raspadskaya is a party or which is binding upon Raspadskaya or any of its respective assets, nor result in the creation or imposition of any Liens on any of its assets pursuant to the provisions of any such agreement or other undertaking or instrument; all consents, licences, notifications, authorisations or approvals of, or filings with, any governmental, judicial or public bodies or authorities of the Russian Federation, if any, required in order to ensure (i) the due execution, delivery and performance by Raspadskaya of this Agreement and (ii) the legality, validity, enforceability, and admissibility in evidence of this Agreement have been obtained or effected and are and shall remain in full force and effect; the execution, delivery and enforceability of this Agreement is not subject to any tax, duty, fee or other charge, including, but without limitation to, any registration or transfer tax, stamp duty or similar levy, imposed by or within the Russian Federation or any political subdivision

(b)

(c)

(d)

(e)

151

or taxing authority thereof or therein (other than state duty paid on any claim, petition or other application filed with a Russian court); (f) neither Raspadskaya nor its property has any right of immunity from suit, execution, attachment or other legal process on the grounds of sovereignty or otherwise in respect of any action or proceeding relating in any way to this Agreement; save as disclosed in the Prospectus, in any proceedings taken in the Russian Federation in relation to this Agreement, the choice of English law as the governing law of this Agreement and any arbitration award obtained in England pursuant to Clause 13.12 in relation to this Agreement will be recognised and enforced in the Russian Federation after compliance with the applicable procedures and rules and all other legal requirements in Russia; subject to the performance by the relevant parties of the relevant established procedures in connection with the obtaining of an applicable withholding tax exemption for payments hereunder, as outlined further in Clause 6.6, no withholding in respect of any Taxes is required to be made from any payment by Raspadskaya under this Agreement; Raspadskaya is subject, without reservation, to civil and commercial law with respect to its obligations under this Agreement, and its execution of this Agreement constitutes, and its exercise of its rights and performance of its obligations hereunder will constitute, private and commercial acts done and performed for private and commercial purposes; and all acts, conditions and things, as required to be done, fulfilled and performed to make this Agreement admissible in evidence in Russia (whether in arbitration proceedings or otherwise) have been done, fulfilled and performed.

(g)

(h)

(i)

(j)

Lenders Representations and Warranties 9.2 The Lender represents and warrants to Raspadskaya as follows: (a) the Lender is duly incorporated under the laws of Ireland and has full power and capacity to execute this Agreement and to undertake and perform the obligations expressed to be assumed by it herein and the Lender has taken all necessary corporate action to approve and authorise the same; the execution of this Agreement and the undertaking and performance by the Lender of the obligations expressed to be assumed by it herein will not conflict with, or result in a breach of or default under, the laws of Ireland, any agreement or instrument to which it is a party or by which it is bound or in respect of Indebtedness in relation to which it is a surety or the constitutive documents of the Lender; this Agreement and the Subscription Agreement have each been duly executed by and each constitutes, and the Trust Deed and the Paying Agency Agreement will each be duly executed by and will each constitute, legal, valid and binding obligations of the Lender enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, liquidation, administration, moratorium, examinership, re-organisation and similar laws affecting creditors rights generally, and subject, as to enforceability, to general principles of equity; all authorisations, consents and approvals required by the Lender in Ireland for or in connection with the execution of this Agreement, the Trust Deed, the Paying Agency Agreement and the Subscription Agreement and the performance by the Lender of the obligations expressed to be undertaken by it herein and therein have been obtained and are in full force and effect; the Lender is a resident of Ireland for taxation purposes and is subject to taxation in Ireland not merely on the basis of the source of its income or location of its property but on the basis of its registration as a legal entity, location of its management body or other similar criteria. The Lender will be able to receive certification to the effect that it is resident in Ireland for taxation purposes and, in particular, for the purposes of the Agreement between Ireland and the Russian Federation for the avoidance of double taxation with respect to taxes on income from the relevant Irish authority; at the date hereof, the Lender does not have a permanent establishment or presence outside Ireland, including in particular in the Russian Federation save for that which may be created solely as a result of the Lender entering into and performing its obligations under this

(b)

(c)

(d)

(e)

(f)

152

Agreement, the Trust Deed, the Notes, the Paying Agency Agreement or the Subscription Agreement or any other previous loan agreement with Raspadskaya. In particular: (i) the Lender does not have a branch, representation, division, bureau, office, agency or any other economically autonomous subdivision or other place of business in any other country than Ireland through which the business of the Lender is wholly or partially carried out; the Lender did not explicitly grant authority to and is not aware of an implied authority for the Borrower or any other Person located outside Ireland to negotiate key parameters of any contracts or sign any contracts on behalf of the Lender, bind the Lender to any contracts by other means or otherwise represent the Lender in dealings with third parties; the Lender has its central management and control in Ireland. The Lenders place of effective management is only in Ireland; and the directors of the Lender are Irish nationals and reside in Ireland and shall at all times act independently and exercise their authority from and within Ireland by taking all key decisions relating to the Lender in the Ireland.

(ii)

(iii) (iv)

For the purposes of this representation in relation to Russia a branch, representation, division, bureau, office or an agency shall be understood to mean any fixed place in Russia at which the Lender possesses or rents premises. For the purposes of this representation in relation to Russia an economically autonomous subdivision shall be understood to mean any subdivision which is located in separate territory from the Lender at the location of which permanent workplaces are equipped. A workplace may be created only to an extent there is an employment relationship between an entity and an individual. A workplace shall be deemed to be permanent if it is created for more than one month; (g) the Notes and the Loan will be fully accounted for by the Lender on its balance sheet, meaning that the Loan will be treated as an asset of the Lender under generally accepted accounting practice applicable in Ireland, while the Notes will be treated as a liability of the Lender under generally accepted accounting practices applicable in Ireland; the Lender does not own, either directly or indirectly, any shares of Raspadskaya; the Lender has taken no action (other than entering into loan arrangements with Raspadskaya and the transactions and documents connected therewith) which would cause it to become registered in Russia for tax purposes; there is no reference to the territory of Russia as the actual place of the Lenders activity in the memorandum or articles of association of the Lender; the Board of Directors of the Lender is located in Ireland; and the Lender is liable to Irish corporate income tax at the applicable standard rates in respect of all its taxable profits derived from the transactions contemplated pursuant to the Lender Agreements, computed in accordance with the Irish generally accepted accounting practice, where interest and other income on the Loan receivable by the Lender will be treated as taxable income for Irish tax purposes.

(h) (i)

(j) (k) (l)

10.

COVENANTS

The covenants in this Clause 10 shall remain in force from the date of this Agreement for so long as the Loan or any part of it is outstanding. Negative Pledge 10.1 Raspadskaya shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Liens, other than Permitted Liens, on any of its or their assets, now owned or hereafter acquired, or any income or profits therefrom, securing any Indebtedness, unless, at the same time or prior thereto, the Loan is secured equally and rateably with such other Indebtedness.

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Maintenance of Authorisations 10.2 Raspadskaya shall, and shall procure that each of its Subsidiaries shall, take all necessary action to obtain and do or cause to be done all things necessary, in the opinion of Raspadskaya or the relevant Subsidiary, to ensure the continuance of its corporate existence, its business and intellectual property relating to its business and Raspadskaya shall take all necessary action to obtain, and do or cause to be done all things necessary to ensure the continuance of, all consents, licences, approvals and authorisations, and make or cause to be made all registrations, recordings and filings, which may at any time be required to be obtained or made in the Russian Federation for the execution, delivery or performance of this Agreement or for the validity or enforceability thereof, in each case where failure to do so has had or could reasonably be expected to have a Material Adverse Effect. Claims Pari Passu 10.3 Raspadskaya shall ensure that at all times the claims of the Lender against it under this Agreement rank at least pari passu with the claims of all its other present and future unsecured creditors, save for those claims that are preferred by any bankruptcy, insolvency, liquidation or similar laws of general application or any other mandatory provisions of applicable law. Mergers 10.4 Raspadskaya: (i) shall not enter into any reorganisation (by way of a merger, accession, division, separation or transformation, or other bases or procedures for reorganisation contemplated or as may be contemplated from time to time by Russian legislation, as these terms are construed by applicable Russian legislation); and (ii) shall ensure that, without the prior written consent of the Lender and the Trustee, no Subsidiary (A) enters into any reorganisation (whether by way of a merger, accession, division, separation or transformation as these terms are construed by applicable Russian legislation), or (B) in the case of a Subsidiary incorporated in a jurisdiction other than the Russian Federation participates in any type of corporate reconstruction or other analogous event (as determined under the legislation of the relevant jurisdiction); if in the case of (i) or (ii) above, any such reorganisation or other type of corporate reconstruction could reasonably be expected to result in a Material Adverse Effect. Disposals 10.5 Raspadskaya shall not and shall ensure that its Subsidiaries do not (in each case disregarding sales or other disposals of stock in trade on an arms length basis in the ordinary course of its business including, but not limited to, disposals under the Product Delivery Contracts) sell, lease, transfer or otherwise dispose of by one or more transactions or series of transactions (whether related or not), the whole or any part of its revenues or its assets (except for sales of assets at a price at least equal to the Fair Market Value of such assets sold, where the proceeds of such sale are invested in assets to be used in the ordinary course of the business of the Group) which have the aggregate value in excess of U.S.$25,000,000 or the equivalent thereof in any 12 month period to any person that is not a member of the Group. Transactions with Affiliates 10.6 Raspadskaya shall not, and shall ensure that none of its Subsidiaries, directly or indirectly, will, conduct any business, enter into or permit to exist any transaction or series of related transactions (including, without limitation, the purchase, sale, transfer, assignment, lease, conveyance or exchange of any property or the rendering of any service but excluding any Product Delivery Contracts) with, or for the benefit of, any Affiliate (an Affiliate Transaction) including, without limitation, intercompany loans, unless the terms of such Affiliate Transaction are no less favourable to Raspadskaya or such Subsidiary, as the case may be, than those that could be obtained (at the time of such transaction or, if such transaction is pursuant to a written agreement, at the time of the execution of the agreement providing therefore) in a comparable arms-length transaction with a person that is not an Affiliate of Raspadskaya or such Subsidiary. This Clause 10.6 does not apply to: (i) any Affiliate Transaction between Raspadskaya and its Subsidiaries and between Subsidiaries of Raspadskaya; or (ii) any Affiliate Transaction not involving, individually or in aggregate, payments or value in excess of 10 per cent. of the gross assets or revenues of the Group on a consolidated basis determined by reference to the financial statements for Raspadskayas most recent Fiscal Period; or (iii) compensation of employee benefit

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arrangements with any officer or director of Raspadskaya or such Material Subsidiary arising as a result of their employment contract. Maintenance of Property 10.7 Raspadskaya shall, and shall ensure that its Material Subsidiaries will, cause all property that is used in the conduct of its or their business to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and shall cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as, in the judgment of Raspadskaya or such Material Subsidiary, may be reasonably necessary so that the business carried on in connection therewith may be properly conducted at all times, except where a failure to do so could not reasonably be expected to have a Material Adverse Effect. Payment of Taxes and Other Claims 10.8 Raspadskaya shall, and shall ensure that its Subsidiaries will, pay or discharge or cause to be paid or discharged, before the same shall become overdue (i) all taxes, assessments and governmental charges levied or imposed upon, or upon the income, profits or property of Raspadskaya and its Subsidiaries and (ii) all lawful claims for labour, materials and supplies which, if unpaid, might by law become a Lien (other than a Permitted Lien) upon the property Raspadskaya or any of its Subsidiaries; provided that none of Raspadskaya nor any Subsidiary shall be in breach of this Clause 10.8 if Raspadskaya or any Subsidiary has failed to pay or discharge or cause to be paid or discharged any tax, assessment, charge or claim (a) if such amount, applicability or validity is being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with IFRS or other appropriate provision has been made; or (b) if a failure to pay, or discharge or cause to be paid or discharged such amount, together with all such other unpaid or undischarged taxes, assessments, charges and claims, could not reasonably be expected to have a Material Adverse Effect. Withholding Tax Exemption 10.9 Raspadskaya shall give to the Lender all assistance it reasonably requires to ensure that, prior to the first interest payment and at the beginning of each calendar year, the Lender can provide Raspadskaya with the documents required under Russian laws for the relief of the Lender from Russian withholding tax in respect of payments hereunder. Maintenance of Insurance 10.10 Raspadskaya shall, and shall ensure that each of its Subsidiaries will, keep those of their material properties which are of an insurable nature insured with insurers of good standing against loss or damage to the extent that such material properties are insured at the date of this Agreement or at such increased level that Raspadskaya reasonably believes to be appropriate for its business and the industries in which it operates. Environmental compliance 10.11 Raspadskaya shall and shall ensure that each of its Subsidiaries will, comply in all material respects with all Environmental Laws and obtain and maintain any Environmental Licences and take all reasonable steps in anticipation of known or expected future changes to or obligations under the same, except where failure to do so does not and could not reasonably be expected to have a Material Adverse Effect. Financial Information 10.12 Raspadskaya shall deliver to the Lender as soon as they become available, but in any event within six months after the end of each of its financial years, copies of Raspadskayas consolidated financial statements for such financial year, in each case audited by the Auditors and prepared in accordance with IFRS consistently applied with the corresponding financial statements for the preceding period. 10.13 Raspadskaya shall as soon as the same become available, but in any event within 120 days after the end of the first half of each of its financial years, deliver to the Lender Raspadskayas consolidated financial statements for such period.

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10.14 Raspadskaya hereby undertakes that it will deliver to the Lender, without undue delay, such additional information regarding the financial position or the business of Raspadskaya as the Lender may reasonably request including providing certification to the Trustee according to the Trust Deed. 10.15 Raspadskaya shall ensure that each set of consolidated financial statements delivered by it pursuant to this Clause 10.15 is: (a) (b) prepared generally on the same basis as was used in the preparation of its Original Financial Statements and in accordance with IFRS and consistently applied; in the case of the statements provided pursuant to Clause 10.12, accompanied by a report thereon of the Auditors referred to in Clause 10.12 (including opinions of such Auditors with accompanying notes and annexes); and in the case of the statements provided pursuant to Clauses 10.13 and 10.14, certified by an Authorised Signatory of Raspadskaya as giving a true and fair view of the Groups consolidated financial condition as at the end of the period to which those consolidated financial statements relate and of the results of the Groups operations during such period.

(c)

10.16 Raspadskaya undertakes, on the request of the Lender, to furnish to the Lender such information as the Irish Stock Exchange Limited (or any other or further stock exchange or stock exchanges or any relevant authority or authorities on which the Notes may, from time to time, be listed or admitted to trading) may require as necessary in connection with the listing or admission to trading on such stock exchange or relevant authority of such instruments. 10.17 Raspadskaya consents that any information provided to the Lender pursuant to Clauses 10.12 to 10.16 may also be provided to the Trustee, if so requested by the Trustee, without violating any duty of confidentiality or secrecy that the Lender may owe to Raspadskaya under the laws of Ireland. Limitation on Indebtedness 10.18 Raspadskaya shall not, and shall not cause or permit any of its Subsidiaries to, create, issue, incur, assume, guarantee or otherwise in any manner become directly or indirectly liable for the payment of or otherwise incur, contingently or otherwise, any Indebtedness except that if (i) no Potential Event of Default nor Event of Default has occurred and is continuing at the time, or would occur as a consequence of the incurrence of such Indebtedness and (ii) the Leverage Ratio is 3:1 or lower: (1) Raspadskaya may incur Indebtedness; and (2) any Subsidiary of Raspadskaya may incur Indebtedness if Aggregate Subsidiary Indebtedness does not exceed the Subsidiary Indebtedness Threshold. 10.19 Notwithstanding the foregoing Clause 10.18, Raspadskaya and (subject to the limitation in Clause 10.18(2) above) its Subsidiaries are permitted to incur the following types of Indebtedness (each of the following, Permitted Indebtedness): (a) Indebtedness (such definition, for the purposes of this Clause 10.19, to include but shall not limited to Credit Facilities) in an aggregate amount not to exceed U.S.$100,000,000 at any time outstanding; Refinancing Indebtedness in respect of Indebtedness incurred pursuant to Clause 10.18 above or pursuant to this sub-Clause 10.19(b) or sub-Clauses 10.19(a) above or 10.19(c) or (j) below; Indebtedness represented by the Loan; intercompany and intra-Group Indebtedness owed to and held by Raspadskaya or a Subsidiary of Raspadskaya; provided, however, that any subsequent disposition, pledge or transfer of such Indebtedness (other than to Raspadskaya or a Subsidiary of Raspadskaya) shall be deemed, in each case, to constitute the incurrence of such Indebtedness by the obligor thereon; Indebtedness in respect of bid, performance or surety bonds or veksels (Russian roubledenominated short-term promissory notes) issued for the account of Raspadskaya or any Subsidiary of Raspadskaya in the ordinary course of business; Indebtedness arising from netting arrangements or the honouring by a bank or other financial institution of a cheque, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business, provided, however, that such Indebtedness is extinguished within thirty days of its incurrence;

(b) (c) (d)

(e)

(f)

156

(g)

any derivatives transaction entered into in the ordinary course of business of Raspadskaya or any of its Subsidiaries in connection with protection against or benefit from fluctuation in any rate, currency or price (and not for speculative purposes); indemnification, adjustment of purchase price, earn-out or similar obligations, in each case, incurred or assumed in connection with the acquisition or disposition of any business or assets of Raspadskaya or any Subsidiary or Capital Stock of a Subsidiary, other than guarantees of Indebtedness incurred by any person acquiring all or any portion of such business, assets or Capital Stock for the purpose of financing or in contemplation of any such acquisition; provided that (1) any amount of such obligations included on the face of the statement of financial position of Raspadskaya or any Subsidiary shall not be permitted under this sub-Clause 10.19(h) (contingent obligations referred to in a footnote to financial statements and not otherwise included on the statement of financial position shall not be deemed to be included on such statement of financial position for purposes of this sub-clause (1)) and (2) in the case of a disposition, the maximum aggregate liability in respect of all such obligations outstanding under this sub-Clause 10.19(h) shall at no time exceed the gross proceeds actually received by Raspadskaya or the relevant Subsidiary in connection with such disposition; Indebtedness of any person that is assumed by Raspadskaya or any Subsidiary in connection with its acquisition of assets from such person or any Affiliate thereof or is issued and outstanding on or prior to the date on which such person was acquired by Raspadskaya or any Subsidiary or merged or consolidated, or amalgamated with or into, or transferred or conveyed by substantially all of its assets to, or is liquidated into Raspadskaya or any Subsidiary (other than Indebtedness incurred to finance, or otherwise incurred in connection with, or in contemplation of, such acquisition), provided that on the date of such acquisition, merger, consolidation, amalgamation, transfer, conveyance or liquidation, after giving effect thereto Raspadskaya would be permitted to incur at least U.S.$1.00 of additional Indebtedness pursuant to Clause 10.18; Indebtedness of Raspadskaya and its Subsidiaries to the extent outstanding on the Closing Date after giving effect to the application of the proceeds of the Loan; Indebtedness in respect of workers compensation claims or claims arising under similar legislation, or pursuant to self-insurance obligations and not in connection with the borrowing of money or the obtaining of advances or credit; and Indebtedness in respect of customer deposits and advance payments received from customers in the ordinary course of business. the outstanding principal amount of any particular Indebtedness shall be counted only once and any obligations arising under any Guarantee, Lien, letter of credit or similar instrument supporting such Indebtedness shall not be double counted; Indebtedness permitted by Clauses 10.18 and 10.19 need not be permitted solely by reference to such Clauses or one provision of the definition of Permitted Indebtedness in Clause 10.19 permitting such Indebtedness but may be permitted in part by one such provision and in part by one or more other provisions of Clauses 10.18 and 10.19 and the definition of Permitted Indebtedness; and in the event that any item of Indebtedness meets the criteria of more than one of the types of Indebtedness described in Clauses 10.18 and 10.19 or one of the provisions of the definition of Permitted Indebtedness permitting such Indebtedness, Raspadskaya will be permitted, in its sole discretion, to divide, classify or reclassify all or a portion of such item of Indebtedness in any manner that complies with this Agreement.

(h)

(i)

(j) (k)

(l)

10.20 For purposes of determining compliance with Clauses 10.18 and 10.19: (a)

(b)

(c)

10.21 For purposes of determining compliance with any U.S. dollar denominated restriction on the incurrence of Indebtedness where the Indebtedness incurred is denominated in a different currency, the amount of such Indebtedness will be the U.S. Dollar Equivalent determined on the date of the incurrence of such Indebtedness; provided, however, that if any such Indebtedness denominated in a different currency is subject to a Currency Agreement with respect to U.S. dollars covering all principal, premium, if any, and interest payable on such Indebtedness, the amount of such Indebtedness expressed in U.S. dollars will be as provided in such Currency Agreement. Notwithstanding any other provision of this Agreement, the maximum amount of Indebtedness that

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Raspadskaya or any of its Subsidiaries may incur in accordance with this Agreement shall not be deemed to be exceeded with respect to any outstanding Indebtedness due solely to the result of fluctuations in the exchange rates of currencies. Limitation on Restrictions on Distributions from Subsidiaries 10.22 Raspadskaya shall not, and shall not permit any of its Subsidiaries to, create or otherwise cause or permit to exist or become effective any consensual encumbrance or consensual restriction on the ability of any Subsidiary to: (a) (b) (c) pay dividends or make any other distributions on its share capital; make any loans or advances or pay any Indebtedness owed to Raspadskaya; or transfer any of its property or assets to Raspadskaya,

other than encumbrances or restrictions existing under the Loan Agreement and any other agreement in effect prior to the Closing Date and advised in writing to the Trustee and the Lender or any restrictions provided for by the applicable laws of the Russian Federation. Officer Certificates 10.23 On each Interest Payment Date, Raspadskaya shall deliver to the Lender and to the Trustee written notice in the form of an Officers Certificate stating whether any Potential Event of Default or Event of Default has occurred and, if it has occurred and shall be continuing, what action Raspadskaya is taking or proposes to take with respect thereto. 10.24 Raspadskaya will at the same time as delivering Raspadskayas audited annual financial statements pursuant to Clause 10.12 and within 30 days of a request from the Lender, deliver to the Lender copied to the Trustee an Officers Certificate specifying those of its Subsidiaries which were at a date no more than 20 days before the date of such Officer Certificate, Material Subsidiaries. 10.25 Following the occurrence of any matter or event specified in this Agreement where this Agreement provides for a determination of whether such matter or event has or will have a Material Adverse Effect, Raspadskaya shall provide the Lender (with a copy to the Trustee) with an Officers Certificate certifying whether such matter or event has or will have a Material Adverse Effect and setting out such additional information as may be required to support such determination. The Lender and the Trustee shall each be entitled to rely solely on an Officers Certificate from Raspadskaya, certifying whether or not such matter has or will have a Material Adverse Effect. Change of Business 10.26 Raspadskaya shall procure that no material change is made to the general nature of the business of itself or any of its Material Subsidiaries from that carried on at the date of this Agreement. Obligations 10.27 Raspadskaya shall not do or permit to be done any act or thing that might jeopardise or otherwise alter or impair the Obligations. Notes Held by Raspadskaya 10.28 Upon being so requested in writing by the Lender, Raspadskaya shall deliver to the Lender (copied to the Trustee) an Officers Certificate of Raspadskaya setting out the total principal amount of Notes which, at the date of such certificate, are held by Raspadskaya (or any Subsidiary of Raspadskaya) and have not been cancelled and are retained by it for its own account or for the account of any other company. Verification 10.29 Neither the Lender nor the Trustee shall be under any obligation to verify the authenticity of any Officers Certificate or any other certificate received by it or to approve the selection of any Auditors or be responsible for determining the existence of any Potential Event of Default or any Event of Default. The Lender and the Trustee shall each be at liberty to accept any aforementioned Officers Certificate as sufficient evidence of any fact or matter stated in any such Officers Certificate and neither the Lender nor the Trustee shall be bound to call for further evidence or be responsible for any loss that may be occasioned by acting on, such Officers Certificate or selection or failure to

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determine the existence of any Event of Default or Potential Event of Default or whether any matter shall have a Material Adverse Effect. 11. EVENTS
OF

DEFAULT

Events of Default 11.1 If one or more of the following events of default (each, an Event of Default) shall occur and be continuing, the Lender shall be entitled to the remedies set forth in sub-Clause 11.3: (a) (b) Raspadskaya fails to pay any amount of principal, interest and other amounts payable hereunder by no later than the fifth day after the due date for payment thereof; or Raspadskaya defaults in the performance or observance of any of its other obligations under this Agreement and (except for any obligation pursuant to Clause 11.2) such default remains unremedied for 30 days after written notice thereof, addressed to Raspadskaya by the Lender, has been delivered to Raspadskaya; or (i) (ii) any Indebtedness of Raspadskaya or any of Raspadskayas Subsidiaries is not paid when due or payable (as the case may be) within any originally applicable grace period; or any such Indebtedness becomes due and payable prior to its stated maturity otherwise than at the option of Raspadskaya or (as the case may be) at the option of a Subsidiary of Raspadskaya or (provided that no event of default, howsoever described, has occurred) any person entitled to such Indebtedness;

(c)

provided that the amount of Indebtedness referred to in sub-paragraph (i) and/or sub-paragraph (ii) above individually or in the aggregate exceeds U.S.$20,000,000 (or its equivalent in any other currency or currencies); and further provided that in determining the amount of any Indebtedness for this purpose, Indebtedness arising under a Repurchase Agreement shall be deemed to be the net amount (if any) payable to a third party pursuant to such agreement to discharge all obligations thereunder; or (d) the amount of unsatisfied judgments, decrees or orders of courts or dispute resolution bodies of competent jurisdiction for the payment of money against Raspadskaya and its Subsidiaries in the aggregate at any given moment of time exceeds U.S.$5,000,000 (or the equivalent thereof in any other currency or currencies) and there is a period of three months following the entry thereof (or, if later, the date therein specified for payment or on which such judgement, decree or order otherwise becomes enforceable) during which such judgment, decree or order is not appealed, discharged, waived or the execution thereof stayed; or a secured party takes possession, or a receiver, manager or other similar officer is appointed, of the whole or any part of the undertaking, assets and revenues of Raspadskaya or any of Raspadskayas Subsidiaries and such action could reasonably be expected to have a Material Adverse Effect; or the occurrence of any of the following events: (i) any of Raspadskaya or any of its Material Subsidiaries ceases to have corporate existence or is seeking or consenting to the introduction of proceedings for its liquidation or the appointment of a liquidator or liquidation commission (likvidatsionnaya komissiya) or a similar officer of Raspadskaya or any of its Material Subsidiaries, as the case may be, or a petition in relation to Raspadskaya or any of its Material Subsidiaries for winding up; (ii) the presentation or filing of a petition in respect of any of Raspadskaya or any of its Material Subsidiaries in any court of competent jurisdiction, arbitration court or before any competent agency alleging, or for, the bankruptcy, insolvency, dissolution, liquidation (or any analogous proceedings) of any of Raspadskaya or its Material Subsidiaries (ignoring any petition that is not accepted by such court or agency for review on its merits); (iii) the institution of bankruptcy, insolvency, voluntary or judicial liquidation, composition with creditors, reprieve from payment, controlled management, fraudulent conveyance, general settlement with creditors, reorganisation or similar laws affecting the rights of creditors generally which, in the case of any entity in Russia and without limitation, shall include the institution of supervision (nablyudeniye), financial rehabilitation (finansovoye ozdorovleniye), external management (vneshneye upravleniye), bankruptcy management (konkursnoye proizvodstvo) over the relevant entity in Russia; (iv) the entry by Raspadskaya or any of its Material Subsidiaries into, or the agreeing by Raspadskaya or any of its Material Subsidiaries to enter into any amicable settlement which, in the case of any entity in Russia and without limitation, shall include amicable settlement (mirovoye soglasheniye) with its

(e)

(f)

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creditors, as such terms are defined in the Federal Law of Russia No. 127-FZ On Insolvency (Bankruptcy) dated 26 October 2002 (as amended or replaced from time to time); and/or (v) any judicial liquidation in respect of Raspadskaya or any of its Material Subsidiaries; or (g) an order is made or an effective resolution is passed for the winding up, liquidation or dissolution of Raspadskaya or any of Raspadskayas Material Subsidiaries (otherwise than, in the case of a Material Subsidiary of Raspadskaya, for the purposes of or pursuant to an amalgamation, reorganisation or restructuring whilst solvent); or any action, condition or thing at any time required to be taken, fulfilled or done in order (i) to enable Raspadskaya lawfully to enter into and perform and comply with its obligations under and in respect of this Agreement, (ii) to ensure that those obligations are legal, valid, binding and enforceable and (iii) to make admissible in evidence in an arbitration court in London is not taken, fulfilled or done; or (i) all or any substantial part of the undertaking, assets and revenues of Raspadskaya or any of Raspadskayas Material Subsidiaries is condemned, seized or otherwise appropriated by any person acting under the authority of any national, regional or local government or (ii) Raspadskaya or any of Raspadskayas Material Subsidiaries is prevented by any such person from exercising normal control over all or any substantial part of its undertaking, assets and revenues provided that with respect to the Material Subsidiaries the occurrence of (i) or (ii) above must be reasonably likely to have Material Adverse Effect; or at any time it is or becomes unlawful for Raspadskaya to perform or comply with any or all of its Obligations or any of such Obligations (subject as provided in Clause 9.1(b)) are not, or cease to be, legal, valid, binding and enforceable and such unlawfulness or cessation could reasonably be expected to have a Material Adverse Effect; or any governmental authorisation necessary for the performance of any obligation of Raspadskaya under this Agreement, as the case may be, fails to be in full force and effect and such failure would have a Material Adverse Effect; or any event occurs which under the laws of any relevant jurisdiction has an effect analogous to any of the events referred to in any of the foregoing paragraphs.

(h)

(i)

(j)

(k)

(l)

Notice of Default 11.2 Raspadskaya shall deliver to the Lender, promptly after the occurrence thereof, written notice of any event which is an Event of Default, or a Potential Event of Default, its status and what action Raspadskaya is taking or proposes to take with respect thereto. Default Remedies 11.3 If any Event of Default shall occur and be continuing, the Lender may, by notice in writing to Raspadskaya, (a) declare the obligations of the Lender hereunder to be immediately terminated, whereupon such obligations shall terminate, and (b) declare all amounts payable hereunder by Raspadskaya that would otherwise be due after the date of such termination to be immediately due and payable, whereupon all such amounts shall become immediately due and payable, all without diligence, presentment, demand of payment, protest or notice of any kind, which are expressly waived by Raspadskaya; provided, however, that if any event of any kind referred to in Clause 11.1(g) occurs, the obligations of the Lender hereunder shall immediately terminate, and all amounts payable hereunder by Raspadskaya that would otherwise be due after the occurrence of such event shall become immediately due and payable, all without diligence, presentment, demand of payment, protest or notice of any kind, which are especially waived by Raspadskaya. Rights Not Exclusive 11.4 The rights provided for herein are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law. 12. INDEMNITY

Indemnification 12.1 Raspadskaya undertakes to the Lender, that if the Lender or any director, officer, employee, attorney or agent of the Lender and each person controlling the Lender (each an indemnified party) incurs any properly documented loss, liability, claim, demand or damage, charge or properly

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incurred expense (including without limitation taxes and properly incurred legal fees, costs and expenses) (a Loss) as a result of or in connection with the Loan, this Agreement (or enforcement thereof) (excluding a Loss that is the subject of the undertakings contained in Clauses 6.2, 6.3, 8 and 13.9 of this Agreement (it being understood that the Lender may not recover twice in respect of the same Loss)), and/or the issue, constitution, sale, listing and/or enforcement of the Notes and/or the Notes being outstanding, Raspadskaya shall pay to the Lender on demand an amount equal to such Loss and all costs, charges and expenses which it or any indemnified party may pay or incur in connection with investigating, disputing or defending any such action or claim as such costs, charges and expenses are incurred unless such Loss was either caused by such indemnified partys negligence, bad faith, fraud or wilful misconduct or arises out of a breach of the representations and warranties of the Lender contained herein. The Lender shall not have any duty or obligation whether as fiduciary or trustee for any indemnified party or otherwise, to recover any such payment or to account to any other person for any amounts paid to it under this Clause. If and to the extent the Lender finally and irrevocably recovers from any person other than Raspadskaya any damages in connection with, or arising out of, any litigation or arbitration in respect of the Notes, and has previously been indemnified by Raspadskaya pursuant to this Clause 12.1 in respect of the Loss corresponding to such damages, the Lender shall pay to Raspadskaya the amount of such damages less any applicable fees, cost and expenses including, but not limited to, the cost of such litigation or arbitration that have not been otherwise finally and irrevocably recovered. Notwithstanding the foregoing, in no event shall the Lender be obliged to seek recovery of damages from third parties before it requires indemnification pursuant to this Clause 12.1 or if it has previously been indemnified by Raspadskaya with respect to the corresponding Loss. Independent Obligation 12.2 Sub-Clause 12.1 constitutes a separate and independent obligation of Raspadskaya from its other obligations under or in connection with this Agreement or any other obligation it may have in connection with the issue of the notes by the Lender and shall not affect, or be construed to affect, any other provision of this Agreement or any such other obligations. Evidence of Loss 12.3 A certificate of the Lender setting forth the amount of Loss described in Clause 12.1, specifying in full detail the basis therefor and attaching all relevant documentary evidence shall, in the absence of manifest error, be conclusive evidence of the amount of such losses, expenses and liabilities. Survival 12.4 The obligations of Raspadskaya pursuant to Clauses 6.2, 6.3, 8, 12.1, 13.2 and 13.9 shall survive the execution and delivery of this Agreement, the drawdown of the Facility and the repayment of the Loan, in each case, by Raspadskaya. 13. GENERAL

Evidence of Debt 13.1 The entries made by the Lender in the accounts maintained by the Lender in accordance with its usual practice and evidencing the amounts from time to time lent by and owing to it hereunder shall, in the absence of manifest error, be conclusive evidence of the existence and amounts of Raspadskayas obligations recorded therein. Stamp Duties 13.2 Raspadskaya shall pay all stamp, registration and documentary taxes or similar charges (if any) imposed on Raspadskaya by any person in the United Kingdom, the Russian Federation or Ireland which may be payable or determined to be payable in connection with the execution, delivery, performance, enforcement, or admissibility into evidence of this Agreement and shall indemnify the Lender against any and all costs and expenses which may be incurred or suffered by the Lender with respect to, or resulting from, delay or failure by Raspadskaya to pay such taxes or similar charges upon presentation by the Lender to Raspadskaya of documentary evidence of such costs and expenses. 13.3 Raspadskaya agrees that if the Lender incurs a liability to pay any stamp, registration and documentary taxes or similar charges (if any) imposed by any person in the United Kingdom,

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Russian Federation or Ireland which may be payable or determined to be payable in connection with the execution, delivery, performance, enforcement, or admissibility into evidence of this Agreement, Raspadskaya shall reimburse the Lender on demand an amount equal to such stamp or other documentary taxes or duties and shall indemnify the Lender against any and all costs and expenses which may be incurred or suffered by the Lender with respect to, or resulting from, delay or failure by Raspadskaya to procure the payment of such taxes or similar charges. Waivers 13.4 No failure to exercise and no delay in exercising, on the part of the Lender or Raspadskaya, any right, power or privilege hereunder and no course of dealing between Raspadskaya and the Lender shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege preclude any other or further exercise thereof, or the exercise of any other right, power or privilege. The rights and remedies herein provided are cumulative and not exclusive of any rights, or remedies provided by applicable law. Notices 13.5 All notices, requests, demands or other communications to or upon the respective parties hereto shall be given or made in the English language by fax or otherwise in writing with delivery of a written original to be sent subsequently and shall be deemed to have been duly given or made at the time of delivery, if delivered by hand or courier or if sent by facsimile transmission or by airmail, to the party to which such notice, request, demand or other communication is required or permitted to be given or made under this Agreement addressed as follows: (a) if to Raspadskaya: Open Joint Stock Company Raspadskaya Mira Street, 106 652870 Mezhdurechensk, Russian Federation Fax: +7 38475 46002 Attention: Mr. Kozovoy and EDAS Law Bureau Lomonosovsky prospekt, 43/2 119192 Moscow, Russian Federation Fax: +7 495 228 0759 Attention: Mr. Lifshits (b) if to the Lender: Raspadskaya Securities Limited 5 Harbourmaster Place IFSC Dublin 1 Ireland Fax: +353 1 680 6050 Attention: The Directors or to such other address, fax number or telecopier number as any party may hereafter specify in writing to the other. Assignment 13.6 Subject to Clause 13.7, this Agreement shall inure to the benefit of and be binding upon the parties, their respective successors and any permitted assignee or transferee of some or all of a partys rights under this Agreement. Any reference in this Agreement to any party shall be construed accordingly and, in particular, references to the exercise of rights and discretions or the making of any determination by the Lender, shall include references to the exercise of such rights or discretions by or the making of such determination by the Trustee (as Trustee). Notwithstanding the foregoing, the Trustee shall not be entitled to participate in any determinations by the Lender or any discussions between the Lender and Raspadskaya or any agreements of the Lender or Raspadskaya, pursuant to Clauses 6.4, 6.5 or 8.

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13.7 Raspadskaya shall not assign or transfer all or any part of its rights or Obligations hereunder to any other party. 13.8 Subject to the provisions of Clause 17 of the Trust Deed, the Lender may not assign or transfer, in whole or in part, any of its rights and benefits under this Agreement other than the Reserved Rights except that the Lender may charge by way of first fixed charge in favour of the Trustee (as Trustee) of certain of the Lenders rights and benefits under this Agreement and assign absolutely to the Trustee certain rights, interests and benefits under this Agreement, in each case, as set out in Clause 4 of the Trust Deed. Currency Indemnity 13.9 To the fullest extent permitted by law, the obligation of Raspadskaya in respect of any amount due in Dollars under this Agreement shall, notwithstanding any payment in any other currency (whether pursuant to a judgment or otherwise), be discharged only to the extent of the amount in Dollars that the Lender may, in accordance with normal banking procedures, purchase with the sum paid in such other currency (after any premium and costs of exchange) on the Business Day immediately following the day on which the Lender receives such payment. If the amount in Dollars that may be so purchased for any reason falls short of the amount originally due (the Due Amount), Raspadskaya hereby agrees to indemnify and hold harmless the Lender against any deficiency in Dollars. Any obligation of Raspadskaya not discharged by payment in Dollars shall, to the fullest extent permitted by applicable law, be due as a separate and independent obligation and, until discharged as provided herein, shall continue in full force and effect. If the amount in Dollars that may be purchased exceeds that Due Amount the Lender shall promptly pay the amount of the excess to Raspadskaya. Contracts (Rights of Third Parties) Act 1999 13.10 A person who is not a party to this Agreement has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Agreement, but this does not affect any right or remedy of a third party which exists or is available apart from that Act. Governing law 13.11 This Agreement (including any non-contractual obligations arising out of or in connection with this Agreement) is governed by, and shall be construed in accordance with, English law. Jurisdiction 13.12 (a) Subject to Sub-Clause 13.13(a), any dispute or claim arising out of or in connection with this Agreement (including any question regarding the existence, validity or termination of this Agreement or any non-contractual right or obligation arising out of or in connection with it) (a Dispute) shall be referred to an arbitration tribunal formed pursuant to and finally resolved by arbitration under the LCIA Arbitration Rules (the Rules), which Rules are deemed to be incorporated by reference into this Clause. The arbitral tribunal shall consist of three arbitrators. Each of the parties shall nominate an arbitrator; and a third arbitrator, who shall serve as Chairman, shall be nominated by the two party-nominated arbitrators. In the event that either the claimant or the respondent fail to nominate an arbitrator in accordance with the Rules, such arbitrator shall be appointed by the LCIA Court within 15 days of such failure. The seat of arbitration shall be London, England and the language of the arbitration shall be English. No party may apply to the English court to determine any question of law arising in the course of the arbitration pursuant to Section 45 of the Arbitration Act 1996 or otherwise, or appeal to the English court on a question of law arising out of an award made in the arbitration pursuant to Section 69 of the Arbitration Act 1996 or otherwise. Before an arbitral tribunal has been appointed to determine a Dispute in accordance with Clause 13.12, the Lender may by notice in writing to Raspadskaya, require that all Disputes or a specific Dispute be heard by a court of law. If the Lender gives such notice, the Dispute to which such notice refers shall be determined in accordance with Sub-Clause 13.13(b).

(b)

(c)

(d) (e)

13.13 (a)

163

(b)

(i)

Except as provided in Sub-Clause 13.13(b)(ii), with respect to any Dispute heard in a court of law, the courts of England shall have exclusive jurisdiction to resolve and settle such Disputes. The Lender shall not be prevented from taking proceedings relating to a Dispute in any other courts with competent jurisdiction. To the extent allowed by law, the Lender may take proceedings in any number of jurisdictions (whether concurrently or not). This Sub-Clause 13.13(b) (ii) is for the benefit of the Lender only.

(ii)

13.14 Raspadskaya consents generally in respect of any arbitration or litigation proceedings to the giving of any relief or the issue of any process in connection with the enforcement of such proceedings including (without limitation) the making, enforcement or execution against any property whatsoever (irrespective of its use or intended use) of any order or judgement which is made or given in such proceedings. Lenders process agent 13.15 The Lender irrevocably appoints Aquila International Services Ltd (the Lenders Agent), of 2nd Floor, Berkeley Square House, Berkeley Square, London W1J 6BD, as its agent to accept service of process in England in any Dispute (whether that Dispute is to be resolved by arbitration or litigation), provided that: (a) (b) (c) service upon the Lenders Agent shall be deemed valid service upon the Lender whether or not the process is forwarded to or received by the Lender; the Lender shall inform all other parties to this Agreement, in writing, of any change in the address of the Lenders Agent within 28 days of such change; if the Lenders Agent ceases to be able to act as a process agent or to have an address in England, the Lender irrevocably agrees to appoint a new process agent in England acceptable to the other parties to the Agreement and to deliver to the other parties to the Agreement within 14 days a copy of a written acceptance of appointment by the new process agent; and nothing in this Agreement shall affect the right to serve process in any other manner permitted by law.

(d)

Raspadskayas process agent 13.16 Raspadskaya irrevocably appoints Aquila International Services Ltd (Raspadskayas Agent), of 2nd Floor, Berkeley Square House, Berkeley Square, London W1J 6BD, as its agent to accept service of process in England in any Dispute (whether that Dispute is to be resolved by arbitration or litigation), provided that: (a) (b) (c) service upon Raspadskayas Agent shall be deemed valid service upon Raspadskaya whether or not the process is forwarded to or received by Raspadskaya; Raspadskaya shall inform all other parties to this Agreement, in writing, of any change in the address of Raspadskayas Agent within 28 days of such change; if Raspadskayas Agent ceases to be able to act as a process agent or to have an address in England, Raspadskaya irrevocably agrees to appoint a new process agent in England acceptable to the other parties to the Agreement and to deliver to the other parties to the Agreement within 14 days a copy of a written acceptance of appointment by the new process agent; and nothing in this Agreement shall affect the right to serve process in any other manner permitted by law.

(d)

Counterparts 13.17 This Agreement may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same agreement. Language 13.18 The language which governs the interpretation of this Agreement is the English language.

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Amendments 13.19 Except as otherwise provided by its terms, this Agreement may not be varied except by an agreement in writing signed by the parties. Partial Invalidity 13.20 The illegality, invalidity or unenforceability to any extent of any provision of this Agreement under the law of any jurisdiction shall affect its legality, validity or enforceability in such jurisdiction to such extent only and shall not affect its legality, validity or enforceability under the law of any other jurisdiction, nor the legality, validity or enforceability of any other provision. Prescription 13.21 In the event that the Notes become void pursuant to Condition 10 (Prescription) of the Notes, the Lender shall forthwith repay to Raspadskaya the principal amount of such Note subject to the Lender having previously received from Raspadskaya, and being in possession of, a corresponding amount in respect of principal pursuant to this Agreement. Non Petition and Limited Recourse 13.22 Neither Raspadskaya nor any other person acting on its behalf shall be entitled at any time to institute against the Lender, or join in any institution against the Lender of, any bankruptcy, administration, moratorium, reorganisation, controlled management, arrangement, insolvency, examinership, winding-up or liquidation proceedings or similar insolvency proceedings under any applicable bankruptcy or similar law in connection with any obligation of the Lender under this Agreement, save for lodging a claim in the liquidation of the Lender which is initiated by another party or taking proceedings to obtain a declaration or judgment as to the obligations of the Lender. Raspadskaya hereby agrees that it shall have recourse in respect of any claim against the Lender only to sums in respect of principal, interest or other amounts (if any), as the case may be, received by or for the account of the Lender pursuant to this Agreement (the Lender Assets), subject always to the Security Interests (as defined in the Trust Deed), and that any claim by Raspadskaya shall be reduced pro rata so that the total of all such claims does not exceed the aggregate value of the Lender Assets after meeting claims secured on them. Neither Raspadskaya nor any person acting on its behalf shall be entitled to take any further steps against the Lender to recover any further sums and no debt shall be owned by the Lender to such person in respect of any such further sum. It is expressly agreed and understood that the entry into this Agreement constitutes a corporate obligation only of the Lender. No personal liability shall attach to or be incurred by any shareholder, member, equity holder, officer, agent, employee or director of the Lender in his capacity as such, under or by reason of any of the obligations, covenants or agreements of such party as a result of entry into this Agreement or implied therefrom and any and all personal liability of every such shareholder, member, equity holder, officer, agent, employee or director for breaches by the Lender of any such obligations, covenants or agreements, either at law or by statute or constitution, is hereby expressly waived by Raspadskaya as a condition of and in consideration for the execution of this Agreement except to the extent that any such person acts in bad faith or is negligent in the context of its obligations. The provisions of this Clause shall survive the termination of this Agreement.

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ANNEX TO THE LOAN AGREEMENT 2012 We refer to the loan facility in the amount of U.S.$400,000,000 made available on the terms and subject to the conditions of a loan agreement dated 20 April 2012 between us (the Loan Agreement). For the purposes of clause 2.3 of the Loan Agreement, we hereby agree that the amount of the Facility Fee (as defined therein) is U.S.$ .

Signed for and on behalf of Open Joint-stock Company Raspadskaya By: Title:

By: Title:

Signed by a duly authorised attorney of Raspadskaya Securities Limited By: Title:

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TERMS AND CONDITIONS OF THE NOTES The following (other than the text in italics) is the text of the Terms and Conditions of the Notes, which (subject to modification) will be endorsed on each individual Definitive Note (if issued) and, subject to the provisions thereof, apply to the Global Notes The U.S.$400,000,000 7.75 per cent Loan Participation Notes due 2017 (the Notes, which expression shall in these Terms and Conditions, unless the context otherwise requires, include any further notes issued pursuant to Condition 15 (Further Issues) and consolidated and forming a single series with the then outstanding Notes), of Raspadskaya Securities Limited (the Issuer) are constituted and secured by, and are subject to, and have the benefit of, a trust deed (such trust deed as modified and/or restated and/or supplemented from time to time, the Trust Deed) dated on or about the Closing Date and made between the Issuer and Citibank, N.A., London Branch (the Trustee, which expression shall include its successor(s)) as trustee for the holders of the Notes (the Noteholders)). The Issuer has authorised the creation, issue and sale of the Notes for the sole purpose of financing a U.S.$400,000,000 loan (the Loan) to Raspadskaya (Open Joint-Stock Company) (Raspadskaya). The Issuer and Raspadskaya have recorded the terms of the Loan in an agreement (such agreement as modified and/or restated and/or supplemented from time to time the Loan Agreement) dated 20 April 2012 between the Issuer and Raspadskaya. In each case where amounts of principal, interest and additional amounts (if any) are stated herein or in the Trust Deed to be payable in respect of the Notes, the obligation of the Issuer to make any such payment shall constitute an obligation only to account to the Noteholders on each date upon which such amounts of principal, interest and additional amounts (if any) are due in respect of the Notes, for an amount equivalent to sums of principal, interest and additional amounts (if any) actually received and retained (net of tax) by or for the account of the Issuer pursuant to the Loan Agreement (less any amounts in respect of the Reserved Rights (as defined in the Trust Deed)). Noteholders must therefore rely solely and exclusively on the covenant to pay under the Loan Agreement, the benefit of the Security Interests and the credit and financial standing of Raspadskaya. Noteholders shall have no recourse (direct or indirect) to any other assets of the Issuer. The Issuer has charged by way of first fixed charge in favour of the Trustee for the benefit of itself and the Noteholders certain of its rights and interests as lender under the Loan Agreement as security for its payment obligations in respect of the Notes and under the Trust Deed (the Charge) and has assigned absolutely certain other rights under the Loan Agreement to the Trustee (the Assigned Rights and, together with the Charge, the Security Interests) in each case excluding the Reserved Rights. In certain circumstances, the Trustee can (subject to it being indemnified and/or secured and/or pre-funded to its satisfaction) be required by Noteholders holding at least one-quarter of the principal amount of the Notes outstanding (as defined in the Trust Deed) or by an Extraordinary Resolution (as defined in the Trust Deed) of the Noteholders to exercise certain of its powers under the Trust Deed (including those arising under the Security Interests). The statements in these terms and conditions (the Conditions) include summaries of, and are subject to, the detailed provisions of, and definitions in, the Trust Deed. Copies of the Trust Deed and a paying agency agreement (such agreement as modified and/or restated and/or supplemented from time to time, the Paying Agency Agreement) dated on or about the Closing Date between the Issuer, Citibank, N.A., London Branch as the principal paying agent and the transfer agent (the Principal Paying Agent and the Transfer Agent, which expressions shall include any successors appointed from time to time in connection with the Notes), Citigroup Global Markets Deutschland AG as the registrar (the Registrar, which expression shall include any successors), the other paying agents appointed thereunder (together with the Principal Paying Agent, the Paying Agents and each a Paying Agent, which expression shall include any successors), Raspadskaya (which expression shall include any successors of Raspadskaya) and the Trustee are available for inspection during normal business hours by Noteholders at the specified office for the time being of the Trustee being, at the date hereof, at 13th Floor, Citigroup Centre, Canada Square, Canary Wharf, London E14 5LB, at the Specified Office (as defined in the Paying Agency Agreement) of each Paying Agent and Transfer Agent and the registered office of the Issuer. References herein to the Agents are to the Registrar, the Principal Paying Agent, the Transfer Agent and the Paying Agents and any reference to an Agent is to any one of them. Noteholders are entitled to the benefit of, are bound by, and are deemed to have notice of, all the provisions of the Trust Deed and those applicable to them of the Paying Agency Agreement. Terms defined

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in the Trust Deed (including the schedules thereto) shall have the same meaning when used herein, except as otherwise provided. 1. STATUS The Notes are limited recourse secured obligations of the Issuer. The sole purpose of the issue of the Notes is to provide the funds for the Issuer to finance the Loan. The Notes constitute the obligation of the Issuer to apply the proceeds from the issue of the Notes solely for financing the Loan and to account to the Noteholders for an amount equivalent to sums of principal, interest and additional amounts (if any) actually received by or for the account of the Issuer pursuant to the Loan Agreement, less any amount in respect of the Reserved Rights. The Trust Deed provides that payments in respect of the Notes equal to the sums actually received by or for the account of the Issuer by way of principal, interest or additional amounts (if any) pursuant to the Loan Agreement, less any amount in respect of the Reserved Rights, will be made pro rata among all Noteholders subject to Condition 7 (Taxation), on the date of, and in the currency of, and subject to the conditions attaching to, the equivalent payment pursuant to the Loan Agreement. The Issuer shall not be liable to make any payment in respect of the Notes other than as expressly provided herein and in the Trust Deed. As provided therein, the Issuer shall be under no obligation to exercise in favour of the Noteholders any rights of set-off or counterclaim, or to combine accounts, that may arise out of other transactions between the Issuer and Raspadskaya. Noteholders have notice of, and have accepted, these Conditions and the contents of the Trust Deed, the Paying Agency Agreement and the Loan Agreement. It is hereby expressly provided that, and Noteholders are deemed to have accepted that: (a) neither the Issuer nor the Trustee makes any representation or warranty in respect of, or shall at any time have any responsibility for, or in the case of the Issuer, save as otherwise expressly provided in the Trust Deed, liability or obligation in respect of the performance and observance by Raspadskaya of its obligations under the Loan Agreement or the recoverability of any sum of principal or interest (or any additional amounts) due or to become due from Raspadskaya under the Loan Agreement save that nothing in this Condition shall absolve the Trustee from responsibility and liability for performance of its trusts, duties and obligations pursuant to, and subject to the terms of, the Trust Deed; (b) neither the Issuer nor the Trustee shall at any time have any responsibility for, or obligation or liability in respect of, the condition (financial or otherwise), creditworthiness, affairs, status, nature or prospects of Raspadskaya; (c) neither the Issuer nor the Trustee shall at any time be liable for any representation or warranty or any act, default or omission of Raspadskaya under or in respect of the Loan Agreement; (d) the financial servicing and performance of the terms of the Notes depend solely and exclusively upon performance by Raspadskaya of its obligations under the Loan Agreement and its covenants to make payments under the Loan Agreement and its credit and financial standing. Raspadskaya has represented and warranted to the Issuer that the Loan Agreement constitutes a legal, valid and binding obligation of Raspadskaya; (e) the Issuer and the Trustee shall be entitled to rely on delivery to them of Officers Certificates (as defined in the Trust Deed) and/or other certificates (whether or not addressed to the Issuer or the Trustee) from Raspadskaya or procured by Raspadskaya as a means of monitoring whether Raspadskaya is complying with its obligations under the Loan Agreement or as to the identity of its Material Subsidiaries (as defined in the Loan Agreement) and shall not otherwise be responsible for investigating any aspect of Raspadskayas performance in relation thereto and, in the case of the Issuer subject as further provided in the Trust Deed, neither the Issuer as lender under the Loan Agreement nor the Trustee will be liable for any failure to make the usual or any investigations which might be made by a lender or a security holder (as applicable) in relation to the property which is subject to the Security Interests and held by way of security for the Notes, and shall not be bound to enquire into or be liable for any defect or failure in the right or title of the Issuer to the property which is subject to the Security Interests whether such defect or failure was known to the Trustee or might have been discovered upon examination or enquiry or whether capable of remedy or not, nor will the Trustee have any liability for the enforceability of the

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security created by the Security Interests whether as a result of any failure, omission or defect in registering or filing or otherwise protecting or perfecting such security; the Trustee has no responsibility for the value of such security; and (f) the Issuer will not be liable for any withholding or deduction or for any payment on account of tax required to be made by the Issuer on or in relation to any sum received by it under the Loan Agreement which will or may affect payments made or to be made by Raspadskaya under the Loan Agreement, save to the extent that it has received additional amounts under the Loan Agreement in respect of such withholding or deduction or payment, and the Issuer shall, furthermore, not be obliged to take any actions or measures as regards such deduction or withholding or payment, other than those set out in this context in the Loan Agreement. The Trustee shall have no liability in respect of any such deduction, withholding or payment. Under the Trust Deed, the obligations of the Issuer in respect of the Notes rank pari passu and rateably without any preference among themselves. In the event that the payments under the Loan Agreement are made by Raspadskaya to, or to the order of, the Trustee or (subject to the provisions of the Trust Deed) the Principal Paying Agent, they will pro tanto, to the extent of such payment, satisfy the obligations of the Issuer in respect of the Notes unless, upon due presentation of a Note, payment is improperly withheld or refused; Save as otherwise expressly provided herein and in the Trust Deed, no proprietary or other direct interest in the Issuers right under or in respect of the Loan Agreement, the Loan, the Account or the Charged Property (each as defined in the Trust Deed) exists for the benefit of the Noteholders. Subject to the terms of the Trust Deed, no Noteholder will have any entitlement to enforce the Loan Agreement or direct recourse to Raspadskaya except through action by the Trustee pursuant to the relevant Security Interests granted to the Trustee in the Trust Deed. Neither the Issuer nor, following the enforcement of the Security Interests created in the Trust Deed, the Trustee shall be required to take proceedings to enforce payment under the Loan Agreement unless it has been indemnified and/or secured and/or prefunded by the Noteholders to its satisfaction. Notwithstanding any other provision hereof, the obligations of the Issuer under the Notes shall be solely to make payments of amounts in aggregate equal to each sum actually received by or for the account of the Issuer (after deduction or withholding of such taxes or duties as may be required to be made by the Issuer by law in respect of such sum or in respect of the Notes and for which the Issuer has not received a corresponding payment (also after deduction or withholding of such taxes or duties as may be required to be made by the Issuer in respect thereof) pursuant to the Loan Agreement) from Raspadskaya in respect of principal, interest or, as the case may be, other amounts relating to the Loan pursuant to the Loan Agreement (less any amounts in respect of the Reserved Rights), the right to receive which will, inter alia, be assigned to the Trustee as security for the Issuers payment obligations in respect of the Notes. Accordingly, all payments to be made by the Issuer under the Notes will be made only from and to the extent of such sums received or recovered by or on behalf of the Issuer or the Trustee (following a Relevant Event or (if applicable) an Event of Default). Noteholders shall look solely to such sums for payments to be made by the Issuer under the Notes, the obligation of the Issuer to make payments in respect of the Notes will be limited to such sums and Noteholders will have no further recourse to the Issuer or any of the Issuers other assets in respect thereof. In the event that the amount due and payable by the Issuer under the Notes exceeds the sums so received or recovered, the right of any person to claim payment of any amount exceeding such sums shall be extinguished, and Noteholders may take no further action to recover such amounts. None of the Noteholders or the other creditors (nor any other person acting on behalf of any of them) shall be entitled at any time to institute against the Issuer, or join in any institution against the Issuer of, any bankruptcy, administration, moratorium, reorganisation, controlled management, arrangement, insolvency, examinership, winding-up or liquidation proceedings or similar insolvency proceedings under any applicable bankruptcy or similar law in connection with any obligation of the Issuer relating to the Notes or otherwise owed to the creditors, save for lodging a claim in the liquidation of the Issuer which is initiated by another party or taking proceedings to obtain a declaration or judgment as to the obligations of the Issuer. No Noteholder shall have any recourse against any director, shareholder, or officer of the Issuer in respect of any obligations, covenants or agreement entered into or made by the Issuer in respect of the Notes, other than in the case of fraud.

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2.

FORM, DENOMINATION, REGISTER

AND

TRANSFERS

2.1 Form and denomination: Notes are in registered form, in the denominations of U.S.$ 200,000 or integral multiples of U.S.$ 1,000 in excess thereof, without coupons. 2.2 Register, Title and Transfers: The Registrar will maintain a register (the Register) outside of the United Kingdom in respect of the Notes in accordance with the provisions of the Paying Agency Agreement. In these Conditions the holder of a Note means the person in whose name such Note is for the time being registered in the Register (or, in the case of a joint holding, the first named thereof) and Noteholder shall be construed accordingly. A Note will be issued to each Noteholder in respect of its registered holding. The holder of each Note shall (except as otherwise required by law) be treated as the absolute owner of such Note for all purposes (whether or not it is overdue and regardless of any notice of ownership, trust or any other interest therein, any writing on the Note relating thereto (other than the endorsed form of transfer) or any notice of any previous loss or theft of such Note) and no person shall be liable for so treating such holder. Subject to the last paragraph of this Condition 2.2, a Note may be transferred upon surrender of the relevant Note, with the endorsed form of transfer duly completed, at the specified office of the Registrar or at the specified office of the Transfer Agent, together with such evidence as the Registrar or the Transfer Agent may reasonably require to prove the title of the transferor and the authority of the individuals who have executed the form of transfer. Where not all the Notes represented by the surrendered Note are the subject of the transfer, a new Note in respect of the balance of the Notes not transferred will be issued to the transferor. Subject to the last paragraph of this Condition 2.2, within five business days of the surrender of a Note in accordance with the immediately preceding paragraph above, the Registrar will register the transfer in question and deliver a new Note to each relevant holder at its specified office or (at the request and risk of such relevant holder) by uninsured first class mail (airmail if overseas) to the address specified for the purpose by such relevant holder. In this paragraph, business day means a day on which commercial banks are open for business (including dealings in foreign currencies) in the city where the Registrar or (as the case may be) the relevant Transfer Agent has its specified office. In the case of the transfer of only a part of the Notes, a new Note in respect of the balance of the Notes not transferred will be so delivered or (at the risk and, if mailed at the request of the transferor otherwise than by ordinary uninsured mail, at the expense of the transferor) sent by mail to the transferor. The transfer of a Note will be effected without charge but against such indemnity as the Registrar or the Transfer Agent, as applicable, may require in respect of any tax or other duty of whatsoever nature which may be levied or imposed in connection with such transfer. Noteholders may not require transfers to be registered during the period of 15 days ending on the due date for any payment of principal or interest in respect of the Notes. All transfers of Notes and entries on the Register are subject to the detailed regulations concerning the transfer of Notes scheduled to the Paying Agency Agreement. The regulations may be changed by the Issuer with the prior written approval of the Trustee, the Registrar and Raspadskaya. A copy of the current regulations will be mailed (free of charge) by the Registrar and/or any Transfer Agent to any Noteholder who requests in writing a copy of such regulations. 3. RESTRICTIVE COVENANT

As provided in the Trust Deed, so long as any of the Notes remains outstanding (as defined in the Trust Deed), the Issuer will not, without the prior written consent of the Trustee, agree to any amendment to or any modification or waiver of, or authorise any breach or proposed breach of, the terms of the Loan Agreement and will act at all times in accordance with any instructions of the Trustee from time to time with respect to the Loan Agreement, except as otherwise expressly provided in the Loan Agreement. Any such amendment, modification, waiver or authorisation made with the consent of the Trustee shall be binding on the Noteholders and, unless the Trustee agrees otherwise, any such amendment or modification shall be notified by the Issuer to the Noteholders in accordance with Condition 13 (Notices).

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4.

INTEREST

On each Interest Payment Date (or such later date as amounts equivalent to amounts of interest are received) the Issuer shall account to the Noteholders for an amount equal to the amount of interest actually received by or for the account of the Issuer pursuant to the Loan Agreement, which interest under the Loan Agreement is payable at a rate of 7.75 per cent. per annum as set out in Clause 4 of the Loan Agreement. Interest shall cease to accrue on each Note on the due date for redemption unless, upon due presentation, payment is improperly withheld or refused, in which event interest shall accrue (as well after as before judgment) at the rate of interest set out in clause 4 of the Loan Agreement. In these Conditions, Interest Payment Date means 27 April and 27 October in each year commencing on 27 October 2012. 5. REDEMPTION

Unless previously prepaid or repaid pursuant to clauses 5.2, 5.3 or 5.4 of the Loan Agreement, Raspadskaya will be required to repay the Loan on 27 April 2017 and, subject to such repayment, as set forth in the Loan Agreement, all the Notes then remaining outstanding will on 27 April 2017 be redeemed or repaid by the Issuer at 100 per cent. of the principal amount thereof together with accrued interest. If the Loan should become repayable pursuant to the Loan Agreement prior to 27 April 2017, as set forth in the Loan Agreement, all Notes then remaining outstanding will thereupon become due and redeemable or repayable at 100 per cent. of the principal amount together with accrued interest and (subject to the Loan being repaid together with accrued interest) shall be redeemed or repaid by the Issuer and the Issuer will endeavour to give not less than eight days notice thereof to the Trustee and the Noteholders in accordance with Condition 13 (Notices). Under the Loan Agreement: (a) Raspadskaya may, in the circumstances set out in Clause 5.2 of the Loan Agreement prepay the Loan in whole but not in part; or (b) the Issuer may require Raspadskaya to prepay the Loan in whole but not in part in the circumstances set out in clause 5.3 of the Loan Agreement; The Loan Agreement provides that Raspadskaya or any member of the Group (as defined in the Loan Agreement) may, among other things, purchase notes from time to time having an aggregate principal value of at least U.S.$1,000,000, in the open market or by tender or by private agreement at any price. Such Notes may be held, reissued, resold or, at the option of Raspadskaya or any such member of the Group, delivered to the Issuer together with a request for the Issuer to redeem and thereafter cancel such Notes, whereupon the Issuer shall, pursuant to the Paying Agency Agreement, instruct the Principal Paying Agent to cancel such Notes. Upon the cancellation of such Notes, the Loan shall be treated as prepaid by Raspadskaya in an amount corresponding to the aggregate principal amount of the Notes surrendered for cancellation, together with accrued interest (if any) thereon. The Issuer may compel any beneficial owner of Rule 144A Notes (as defined in the Trust Deed) to sell its interest in such Notes, or may sell such interest on behalf of such holder, if such holder is not a qualified institutional buyer (as defined in Rule 144A under the Securities Act of 1933, as amended (the Securities Act)) and a qualified purchaser (as defined in Section 2(a)(51) of the Investment Company Act of 1940, as amended) at a price equal to the lowest of (x) the purchaser price therefore paid by the beneficial owner, (y) 100 per cent. of the principal amount thereof or (z) the fair market value thereof. 6. PAYMENTS

Payments of principal shall be made by U.S. Dollar cheque drawn on, or, upon request by the holder of a Note to the specified office of the Principal Paying Agent, by transfer to a U.S. Dollar account maintained by the payee with, a bank in New York City, upon surrender of the relevant Notes at the specified office of the Principal Paying Agent or at the specified office of the Transfer Agent. Payments of interest shall be made by U.S. Dollar cheque drawn on, or by transfer to, a U.S. Dollar account maintained by the payee with a bank in New York City and (in the case of interest payable on redemption) upon surrender of the relevant Notes at the specified office of the Principal Paying Agent or at the specified office of the Transfer Agent.

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All payments in respect of the Notes are subject in all cases to any applicable fiscal or other laws and regulations in the place of payment, but without prejudice to the provisions of Condition 7 (Taxation). No commissions or expenses shall be charged to the Noteholders in respect of such payments. Where payment is to be made by transfer to a U.S. Dollar account, payment instructions (for value on the due date, or, if the due date is not a business day, for value the next succeeding business day) will be initiated and, where payment is to be made by U.S. Dollar cheque, the cheque will be mailed (i) (in the case of payments of principal and interest payable on redemption) on the later of the due date for payment and the day on which the relevant Note is surrendered (or, in the case of part payment only, endorsed) at the Specified Office of a Paying Agent and (ii) (in the case of payments of interest payable other than on redemption) on the due date for payment. A Holder of a Note shall not be entitled to any interest or other payment in respect of any delay in payment resulting from (A) the due date for a payment not being a business day or (B) a cheque mailed in accordance with this Condition 6 (Payments) arriving after the due date for payment or being lost in the mail. In this paragraph business day means, in relation to any place, a day on which commercial banks and foreign exchange markets in New York City, London and Moscow settle payments and are open for general business (including dealing in foreign exchange and foreign currency deposits) in that place. Each payment in respect of a Note will be made to the person shown as the holder in the Register at the opening of business (in the place of the Registrars specified office) on the fifteenth day before the due date for each payment (the Record Date). Where payment in respect of a Note is to be made by cheque, the cheque will be mailed to the address shown as the address of the Noteholder in the Register at the opening of business on the relevant Record Date. The Paying Agency Agreement provides that the Issuer may at any time, with the prior written approval of the Trustee appoint a successor Registrar or Principal Paying Agent and/or additional or successor paying agents or transfer agents provided that (i) for so long as the Notes are admitted to trading on the the Irish Stock Exchange Limited (the Stock Exchange), the Issuer will ensure that it maintains (i) a Paying Agent with a specified office in such place (if any) as may be required in accordance with the rules of the Stock Exchange; (ii) a Paying Agent in a European Union member state that will not be obliged to withhold or deduct tax pursuant to any European Union Directive or European Council Directive or law; and (iii) a Registrar. Any such appointment of successor or other Agents shall only take effect (other than in the case of insolvency, when it shall be of immediate effect) after not more than 45 days and not less than 30 days notice thereof shall have been given to the continuing Agents, Raspadskaya, the Trustee and to the Noteholders in accordance with Condition 13 (Notices). In acting under the Paying Agency Agreement and in connection with the Notes, the Agents act solely as agents of the Issuer and (to the extent provided therein) the Trustee and do not assume any obligations towards or relationship of agency or trust for or with any of the Noteholders. In addition, if the due date for redemption or repayment of a Note is not an Interest Payment Date, interest accrued from the preceding Interest Payment Date or, as the case may be, from the date of issuance of the Notes, shall be payable only as and when actually received by or for the account of the Issuer pursuant to the Loan Agreement. Save as directed by the Trustee at any time after the security created in the Trust Deed becomes enforceable, the Issuer will require Raspadskaya to make all payments of principal, interest and any additional amounts to be made pursuant to the Loan Agreement to the Principal Paying Agent to an account in the name of the Issuer with the Principal Paying Agent. Pursuant to the Charge, the Issuer will charge by way of first fixed charge, all its rights, title and interest in and to all sums of money (with the exception of sums relating to the Reserved Rights) then or in the future so deposited in such account and the debts represented thereby to the Trustee for the benefit of the Trustee and the Noteholders. In respect of the Issuers obligations under Conditions 4 (Interest), 5 (Redemption) and 7 (Taxation), and subject to the following sentence, if the Issuer receives any amount under the Loan Agreement in a currency other than U.S. Dollars, the Issuers obligation under the relevant Condition shall be fully satisfied by paying such sum (after deducting any costs of exchange) as the Issuer receives upon conversion of such sum into U.S. Dollars in accordance with customary banking practice in the spot market on the business day immediately following the day on which such sum is received by the Issuer. If the Issuer receives any payment from Raspadskaya pursuant to Clause 13.6 of the Loan Agreement with respect to amounts due under the Notes, the Issuer shall pay such sum to the Noteholders in accordance with this Condition 6.

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7.

TAXATION

All payments in respect of the Notes by or on behalf of the Issuer shall be made free and clear of and without deduction or withholding for or on account of any present or future taxes, duties, assessments or governmental charges of whatever nature (Taxes) imposed or levied, collected, withheld or assessed by or on behalf of Ireland or any political subdivision or any authority thereof or therein having the power to tax, unless the deduction or withholding of such Taxes is required by law. In such event, the Issuer shall, subject as provided below, make such additional payments as shall result in the receipt by the Noteholders of such amount as would have been received by them if no such withholding or deduction had been required. However, the Issuer shall only make such additional payments to the extent and at such time as it shall receive equivalent sums from Raspadskaya under the Loan Agreement. To the extent that the Issuer does not receive any such equivalent sum, the Issuer shall account to the relevant Noteholder for an additional amount equivalent to a pro rata proportion of such additional amount (if any) as is actually received by, or for the account of, the Issuer pursuant to the provisions of the Loan Agreement on the date of, in the currency of, and subject to any conditions attaching to the payment of such additional amount to the Issuer provided that no such additional amount will be payable: (i) to a Noteholder who is liable for such Taxes by reason of his having some connection with Ireland other than the mere holding of such Notes or the receipt of payments in respect thereof; (ii) in respect of a Note presented for payment of principal more than 30 days after the Relevant Date except to the extent that such additional payment would have been payable if such Note had been presented for payment on such thirtieth day; (iii) where such withholding or deduction is imposed on a payment to an individual and is required to be made pursuant to European Council Directive 2003/48/EC or any other European Union Directive implementing the conclusions of the ECOFIN Council meeting of 26-27 November 2000 on the taxation of savings income or any law implementing or complying with, or introduced in order to conform to, such Directive; or (iv) in respect of a Note held by or on behalf of a Noteholder who would have been able to avoid such withholding or deduction by arranging to receive the relevant payment through another Paying Agent in a Member State of the European Union. As used herein, Relevant Date means the later of (i) the date on which the equivalent payment under the Loan Agreement first becomes due and (ii) if the full amount payable by Raspadskaya corresponding to such payment has not been received by, or for the account of, the Issuer pursuant to the Loan Agreement on or prior to such date, it means the date on which such full amount shall have been so received and notice to that effect shall have been duly given to the Noteholders by or on behalf of the Issuer in accordance with Condition 13 (Notices). Any reference herein or in the Trust Deed to payments in respect of the Notes shall be deemed also to refer to any additional amounts which may be payable in accordance with the Trust Deed and this Condition 7 (Taxation) or any undertaking given in addition thereto or in substitution therefor pursuant to the Trust Deed. If the Issuer becomes subject to any taxing jurisdiction other than or in addition to Ireland, references in these Conditions to Ireland shall be construed as references to Ireland and/or such other jurisdiction. 8. ENFORCEMENT

The Trust Deed provides that only the Trustee (subject to Condition 1 (Status)) may pursue the remedies under the general law, the Trust Deed or the Notes to enforce the rights of the Noteholders and no Noteholder will be entitled to pursue such remedies unless the Trustee (having become bound to do so in accordance with the terms of the Trust Deed) fails or neglects to do so within a reasonable period and such failure or neglect is continuing. The Trust Deed also provides that, in the case of an Event of Default (as defined in the Loan Agreement), or of a Relevant Event (as defined in the Trust Deed), the Trustee may, but it shall not be bound to take any such proceedings unless requested in writing to do so by Noteholders holding 25 per cent. in principal amount of the Notes outstanding, or if directed to do so by an Extraordinary Resolution and, in any such case, subject to it being secured and/or indemnified and/or prefunded to its satisfaction, declare all amounts payable under the Loan Agreement by Raspadskaya to be due and payable (in the case

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of an Event of Default), or exercise any rights under the Security Interests created in the Trust Deed in favour of the Trustee (in the case of a Relevant Event). Upon repayment of the Loan following an Event of Default and a declaration as provided herein, the Notes will be redeemed or repaid at their principal amount together with accrued interest thereon and thereupon shall cease to be outstanding. The Trustee may refrain from taking any action in any jurisdiction if the taking of such action in that jurisdiction would, in its opinion based upon legal advice in the relevant jurisdiction, be contrary to any law of that jurisdiction. Furthermore, the Trustee may also refrain from taking such action if it would otherwise render it liable to any person in that jurisdiction or if, in its opinion based upon such legal advice, it would not have the power to take the relevant action in that jurisdiction by virtue of any applicable law in that jurisdiction or if it is determined by any court or other competent authority in that jurisdiction that it does not have such power. 9. MEETINGS OF NOTEHOLDERS; MODIFICATION WAIVER; SUBSTITUTION OF THE ISSUER
OF

NOTES, TRUST DEED

AND

LOAN AGREEMENT;

The Trust Deed contains provisions for convening meetings of Noteholders to consider any matter affecting their interests, including any modification of, or any arrangement in respect of, the Notes, the Loan Agreement or the Trust Deed. Noteholders will be entitled to one vote per U.S.$1,000 in principal amount of Notes held by them. The Trust Deed provides that special quorum provisions apply for meetings of Noteholders convened for the purpose of amending certain terms concerning, inter alia, the amount payable on, and the currency of payment in respect of, the Notes and the amounts payable and currency of payment under the Loan Agreement. Under the terms of the Trust Deed, an Extraordinary Resolution means a resolution passed at a meeting of the Noteholders duly convened and held in accordance with the provisions contained therein by the affirmative vote of Noteholders present in person or represented by proxy or representative owning in the aggregate not less that two-thirds in principal amount of the Notes outstanding owned by the Noteholders who are so present or represented at the meeting. Any resolution duly passed at a meeting of Noteholders will be binding on all the Noteholders, whether present or not. A resolution in writing signed by or on behalf of the Noteholders of not less than 90 per cent. in principle amount of the Notes for the time being outstanding shall for all purposes be valid as an Extraordinary Resolution passed at a meeting of Noteholders convened and held in accordance with these provisions. Such resolution in writing may be in one document or several documents in like form each signed by or on behalf of one or more of the Noteholders. The Trustee may agree, without the consent of the Noteholders, to any modification of the Notes and the Trust Deed or the Loan Agreement which in the opinion of the Trustee is of a formal, minor or technical nature, is made to correct a manifest error or is not materially prejudicial to the interests of the Noteholders as a class. The Trustee may also waive or authorise or agree to the waiving or authorising of any breach or proposed breach by the Issuer of the Conditions or the Trust Deed or, following the creation of the Security Interests, by Raspadskaya of the terms of the Loan Agreement or determine that any event which would or might otherwise give rise to a right of acceleration under the Loan Agreement or any Relevant Event shall not be treated as such, if in the opinion of the Trustee, to do so would not be materially prejudicial to the interests of the Noteholders (as a class) provided always that the Trustee may not exercise such power of waiver in contravention of a written request given by holders of 25 per cent. in aggregate principal amount of the Notes then outstanding or any express direction by Extraordinary Resolution. Any such modification, waiver, authorisation or determination shall be binding on the Noteholders and, unless the Trustee agrees otherwise, shall be promptly notified to the Noteholders in accordance with Condition 13 (Notices). The Trust Deed contains provisions to the effect that Raspadskaya or the Issuer may, provided certain conditions have been met (as further set out in the Trust Deed), and subject to having complied with the requirements set out in the Trust Deed, substitute any entity in place of the Issuer as creditor under the Loan Agreement, as issuer and principal obligor in respect of the Notes and as obligor under the Trust Deed, subject to the substitutes rights under the Loan Agreement being charged and assigned to the Trustee as security for the payment obligations of the substitute obligor under the Trust Deed and the Notes. Not later than 14 days after compliance with the aforementioned requirements, notice thereof shall be given by the Issuer to the Noteholders in accordance with Condition 13 (Notices), failing which the Issuer shall use its best endeavours to ensure that the substitute obligor does so.

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In connection with the exercise of any of its powers, trusts, authorities or discretions, the Trustee shall have regard to the interests of the Noteholders as a class and, in particular, shall not have regard to the consequences of such exercise for individual Noteholders resulting from their being for any purpose domiciled or resident in, or otherwise connected with, or subject to the jurisdiction of, any particular territory. No Noteholder is entitled to claim from the Issuer or the Trustee any indemnification or payment in respect of any tax consequence of any such exercise upon individual Noteholders. 10. PRESCRIPTION Notes will become void unless presented for payment within 10 years (in the case of principal) or five years (in the case of interest) from the due date for payment in respect thereof. 11. INDEMNIFICATION
OF

TRUSTEE

The Trust Deed contains provisions for the indemnification of the Trustee and for its relief from responsibility in certain circumstances, including provisions relieving it from taking proceedings to enforce payment unless indemnified and/or secured and/or prefunded to its satisfaction, and to be paid its costs and expenses in priority to any claims of Noteholders. In addition, the Trustee is entitled to enter into business transactions with the Issuer or Raspadskaya and any entity relating to the Issuer or Raspadskaya without accounting for any profit. The Trustees responsibilities are solely those of trustee for the Noteholders on the terms of the Trust Deed. Accordingly, the Trustee makes no representations and assumes no responsibility for the validity or enforceability of the Loan Agreement or the security created in respect thereof or for the performance by the Issuer of its obligations under or in respect of the Notes and the Trust Deed or by Raspadskaya in respect of the Loan Agreement. The Trustee is entitled to assume that Raspadskaya is performing all of its obligations pursuant to the Loan Agreement and that the Issuer is performing its obligations under the Notes and the Trust Deed (and shall have no liability for doing so) until it has actual knowledge to the contrary. The Trustee shall have no liability to Noteholders for any shortfall they may suffer if it is liable for tax in respect of any payments received by it or as a result of the Security Interests being enforced by it. 12. REPLACEMENT
OF

NOTES

If a Note shall become mutilated, defaced, lost, stolen or destroyed it may, subject to all applicable laws and regulations and requirements of the Stock Exchange, be replaced at the specified offices of the Transfer Agents on payment of such costs, expenses, taxes and duties as may be incurred in connection therewith and on such terms as to evidence, security and indemnity and otherwise as may reasonably be required by or on behalf of the Issuer and/or the Transfer Agents. Mutilated or defaced Notes must be surrendered before replacements will be issued. 13. NOTICES All notices to Noteholders shall be deemed to have been validly given if published in a leading newspaper having general circulation in London (which is expected to be the Financial Times) or, if in the opinion of the Trustee such publication shall not be practicable, in an English language newspaper of general circulation in Europe. Any such notice shall be deemed to have been given on the date of such publication or, if published more than once or on different dates, on the first date on which such publication is made. In addition, for as long as the Notes are listed on the Stock Exchange, any notices to Noteholders will be published in accordance with the then applicable requirements of the Stock Exchange. In case by reason of any other cause it shall be impracticable to publish any notice to Noteholders as provided above, then such notification to such Noteholders as shall be given with the approval of the Trustee in accordance with the rules of the Stock Exchange shall constitute sufficient notice to such Noteholders for every purpose hereunder. 14. PROVISION
OF INFORMATION

The Issuer and Raspadskaya shall, during any period in which they are not subject to or in compliance with the reporting requirements of Section 13 or 15(d) of the United States Securities Exchange Act of 1934 (the Exchange Act) nor exempt from reporting pursuant to Rule 12g3 2(b) under the Exchange Act, duly provide to any holder of a Note which is a restricted security within the meaning of

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Rule 144(a)(3) under the Securities Act or to any prospective purchaser of such securities designated by such Noteholder, upon the written request of such Noteholder or (as the case may be) prospective Noteholder addressed to the Issuer, or Raspadskaya, as the case may be, and delivered to the Issuer, or Raspadskaya, as the case may be, or to the Specified Office of the Registrar, the information specified in Rule 144A(d)(4) under the Securities Act. 15. FURTHER ISSUES The Issuer may from time to time, without the consent of the Noteholders, create and issue further notes either: (a) ranking pari passu with the Notes in all respects (or in all respects except for the first payment of interest on the further notes) so as to be consolidated with and form a single series with the Notes; or (b) upon such terms as to interest, conversion, redemption and otherwise as the Issuer may determine at the time of issue. Any further notes, which are to form a single series with the Notes, shall, and any other further notes may (with the consent of the Trustee) be constituted by a deed supplemental to the Trust Deed between the Issuer and the Trustee. The Trust Deed contains provisions for convening a single meeting of Noteholders in certain circumstances where the Trustee so decides. In relation to any further issue which is to form a single series with the Notes, (i) the Issuer will enter into a loan agreement, or amend or supplement the Loan Agreement on substantially the same terms as the Loan Agreement (or on the same terms except for the first payment of interest) subject to any modifications which, in the sole opinion of the Trustee, only relate to Reserved Rights and would not materially prejudice the interests of Noteholders and (ii) the Security Interests granted in respect of the Notes will be amended or supplemented so as to secure amounts due in respect of such further notes also and/or new security will be granted over any further loan agreement or the Loan Agreement as so amended or supplemented to secure amounts due on the Notes and such further notes. 16. CONTRACTS (RIGHTS
OF

THIRD PARTIES) ACT 1999

No person shall have any right to enforce any term or condition of the Notes under the Contracts (Rights of Third Parties) Act 1999 but this does not affect any right or remedy of any person which exists or is available apart from that Act. 17. GOVERNING LAW The Notes, these Conditions, the Trust Deed and all matters including any non-contractual obligations arising out of or in connection with the Notes, these Conditions and the Trust Deed are governed by, and shall be construed in accordance with, English law. The Issuer has submitted in the Trust Deed to the jurisdiction of the courts of England and has appointed an agent for the service of process in England. There will appear at the foot of the Conditions endorsed on or (as the case may be) attached to each Global Note and Definitive Note (if any) the names and specified offices of the Registrar, the Paying Agents and the Transfer Agents as set out at the end of this Offering Circular.

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SUMMARY OF THE PROVISIONS RELATING TO THE NOTES IN GLOBAL FORM The following is a summary of the provisions to be contained in the Trust Deed to constitute the Notes and in the Global Notes, which will apply to, and in some cases modify, the Terms and Conditions of the Notes while the Notes are represented by the Global Notes. The Global Notes The Notes will be evidenced on issue either (i) in the case of Regulation S Notes, by a Regulation S Global Note deposited with, and registered in the name of a nominee for and deposited with, a common depositary for Euroclear and Clearstream, Luxembourg; or (ii) in the case of Rule 144A Notes, by a Rule 144A Global Note deposited with a custodian for, and registered in the name of Cede & Co, as nominee of DTC. Beneficial interests in the Regulation S Global Note may be held only through Euroclear or Clearstream, Luxembourg at any time. See Book-Entry Procedures for the Global Notes. On acquisition of a beneficial interest in a Regulation S Note, as represented by a Regulation S Global Note, the purchaser thereof will be deemed to represent, among other things, that it is not a U.S. person (as defined in Regulation S) and that, prior to the expiration of 40 day distribution compliance period (as defined in Regulation S), it will not offer, sell, pledge or otherwise transfer such interest except to a person whom the seller reasonably believes (i) to be a non-U.S. person in an offshore transaction in accordance with Rule 903 or Rule 904 of Regulation S; or (ii) to be a person who is eligible to take delivery in the form of an interest in the Rule 144A Global Note. See Transfer Restrictions. Beneficial interests in the Rule 144A Global Note may only be held through DTC at any time. See Book-Entry Procedures for the Global Notes. By acquisition of a beneficial interest in a Rule 144A Global Note, the purchaser thereof will be deemed to represent, among other things, that it is a QIB that is also a QP and that, if in the future it determines to transfer such beneficial interest, it will transfer such interest in accordance with the procedures and restrictions contained in the Agency Agreement. See Transfer Restrictions. Beneficial interests in the relevant Global Note will be subject to certain restrictions on transfer set forth in such relevant Global Note and in the Agency Agreement, and with respect to the Rule 144A Global Note, as set forth in Rule 144A. The Rule 144A Global Note will bear the legends regarding such restrictions set forth under Transfer Restrictions. A beneficial interest in the Regulation S Global Note may be transferred to a person who takes delivery in the form of an interest in the Rule 144A Global Note, in denominations greater than or equal to the minimum denominations applicable to interests in the Rule 144A Global Note, and only upon receipt by the Registrar of a written certification (in the form provided in the Agency Agreement) to the effect that the transferor reasonably believes that the transferee is a QIB that is also a QP and that such transaction is in accordance with any applicable securities laws of any state of the United States or any other jurisdiction. Beneficial interests in the Rule 144A Global Note may be transferred to a person who takes delivery in the form of an interest in the Regulation S Global Note only upon receipt by the Registrar of a written certification (in the form provided in the Agency Agreement) from the transferor to the effect that the transfer is being made to a non-U.S. person and in accordance with Regulation S. Any beneficial interest in the Regulation S Global Note that is transferred to a person who takes delivery in the form of an interest in the Rule 144A Global Note will, upon transfer, cease to be an interest in the Regulation S Global Note and become an interest in the Rule 144A Global Note and, accordingly, will thereafter be subject to all transfer restrictions and other procedures applicable to beneficial interests in the Rule 144A Global Note for as long as it remains such an interest. Any beneficial interest in the Rule 144A Global Note that is transferred to a person who takes delivery in the form of an interest in the Regulation S Global Note will, upon transfer, cease to be an interest in the Rule 144A Global Note and become an interest in the Regulation S Global Note and, accordingly, will thereafter be subject to all transfer restrictions and other procedures applicable to beneficial interests in the Regulation S Global Note for so long as it remains such an interest. No service charge will be made for any registration of transfer or exchange of Notes, but the Registrar may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.

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Amendments to the Terms and Conditions In addition, the Global Notes will contain a provision which modifies the Terms and Conditions of the Notes as they apply to the Notes evidenced by the Global Notes. Notices Notwithstanding Condition 13 of the Notes, so long as the Global Notes are held by or on behalf of DTC, Euroclear, Clearstream, Luxembourg or any other clearing system, provided such other clearing system is regarded as a recognised clearing system by Irish Revenue Commissioners (an Alternative Clearing System), notices to Noteholders represented by the Global Notes may be given by delivery of the relevant notice to DTC, Euroclear, Clearstream, Luxembourg or (as the case may be) such Alternative Clearing System, provided that, for so long as the Notes are listed on the Irish Stock Exchange, and the guidelines of the Irish Stock Exchange so require, notice shall also be given in accordance with the guidelines published by the Irish Stock Exchange. Notices shall be deemed to have been given to the Noteholders on the second day after the day on which such notice is delivered to the relevant clearing system. Payment Payments of principal and interest in respect of Notes evidenced by a Global Note will be made to the person who appears on the register of the Noteholders as holder of the Notes represented by a Global Note on the Clearing System Business Day immediately prior to the date of the relevant payment against presentation and, if no further payment falls to be made in respect of the relevant Notes, surrender of such Global Note to or to the order of the Principal Paying Agent or such other Paying Agent as shall have been notified to the relevant Noteholders for such purpose. Upon any payment of principal or interest on a Global Note, the amount so paid shall be endorsed by or on behalf of the Principal Paying Agent on behalf of the Issuer in the appropriate schedule to the relevant Global Note, which endorsement will be prima facie evidence that such payment has been made in respect of the relevant Notes. As used in this paragraph, Clearing System Business Day means Monday to Friday inclusive, except 25 December and 1 January. Meetings The holder of a Global Note will be treated as being two persons for the purposes of any quorum requirements of, or the right to demand a poll at, a meeting of Noteholders. Trustees Powers In considering the interests of Noteholders while a Global Note is held on behalf of a clearing system, the Trustee may have regard to any information provided to it by such clearing system or its operator as to the identity (either individually or by category) of its accountholders with entitlements to such Global Note and may consider such interests as if such accountholders were the holders of such Global Note. Cancellation Cancellation of any Note required by the Terms and Conditions of the Notes to be cancelled will be effected by reduction in the principal amount of the applicable Global Note. Prescription Claims against the Issuer in respect of principal and interest on the Notes while the Notes are represented by Global Notes will become void unless it is presented for payment within a period of ten years (in the case of principal) and five years (in the case of interest) from the appropriate Relevant Date (as defined in Condition 7 of the Notes). Exchange for Definitive Notes Exchange Each Global Note will be exchangeable, free of charge to the holder, in whole but not in part, for Definitive Notes if: (i) interests in the relevant Global Note are held by or on behalf of (A) DTC, and DTC notifies the Issuer that it is no longer willing or able to discharge properly its responsibilities as depositary

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with respect to the Global Note or ceases to be a clearing agency registered under the Exchange Act or if at any time it is no longer eligible to act as such, and the Issuer is unable to locate a qualified successor within 90 days of receiving notice or becoming aware of such ineligibility on the part of DTC; or (B) Euroclear or Clearstream, Luxembourg, as the case may be, is closed for business for a continuous period of 14 days (other than by reason of holidays, statutory or otherwise) or announces an intention permanently to cease business or does in fact do so, by the holder giving notice to the Registrar or any Transfer Agent; or (ii) if the Issuer would suffer a material disadvantage in respect of the Notes as a result of a change in the laws or regulations (taxation or otherwise) which would not be suffered were the Notes evidenced by Definitive Notes and a notice to such effect signed by two directors of the Issuer is delivered to the Trustee, by the Issuer giving notice to the Registrar or any Transfer Agent and the Noteholders, of its intention to exchange the relevant Global Note for Definitive Notes on or after the date specified in the notice. The holder of the relevant Global Note may surrender such Global Note to or to the order of the Registrar or any Transfer Agent. In exchange for the relevant Global Note, as provided in the Agency Agreement, the Registrar will deliver, or procure the delivery of, an equal aggregate amount of duly executed and authenticated Definitive Notes in or substantially in the form set out in the relevant schedule to the Trust Deed. The Registrar will not register the transfer of, or exchange of interests in, a Global Note for interests evidenced by Definitive Notes for a period of 15 calendar days ending on the date for any payment of principal or interest in respect of the Notes. If only one of the Global Notes (the Exchange Global Note) becomes exchangeable for Definitive Notes in accordance with the above paragraphs, transfers of Notes may not take place between, on the one hand, persons holding Definitive Notes issued in exchange for beneficial interests in the Exchange Global Note and, on the other hand, persons wishing to purchase beneficial interests in the other Global Note. Delivery After the circumstances set out above have occurred, the relevant Global Note shall be exchanged in full for Definitive Notes and the Issuer will, at the cost of Raspadskaya (but against such indemnity as the Registrar or any relevant Transfer Agent may require in respect of any tax or other duty of whatever nature which may be levied or imposed in connection with such exchange), cause sufficient Definitive Notes to be executed and delivered to the Registrar for completion, authentication and dispatch to the relevant Noteholders. A person having an interest in a Global Note must provide the Registrar with (a) a written order containing instructions and such other information as the Issuer and the Registrar may require to complete, execute and deliver such Notes; and (b) in the case of the Rule 144A Global Note, a fully completed, signed certification substantially to the effect that the exchanging holder is not transferring its interest at the time of such exchange or, in the case of simultaneous sale pursuant to Rule 144A, a certification that the transfer is being made in compliance with the provisions of Rule 144A to a purchaser that the transferor reasonably believes to be a QIB that is also a QP. Definitive Notes issued in exchange for a beneficial interest in the Rule 144A Global Note shall bear the legend applicable to transfers pursuant to Rule 144A, as set out under Transfer Restrictions. Legends The holder of a Definitive Note may transfer the Notes evidenced thereby in whole or in part (subject to the applicable minimum denomination) by surrendering it at the specified office of the Registrar or any Transfer Agent, together with the completed form of transfer thereon. Upon the transfer, exchange or replacement of a Definitive Note representing a Rule 144A Note (the Rule 144A Definitive Note) bearing the legend referred to under Transfer Restrictions, or upon specific request for removal of the legend on a Rule 144A Definitive Note, the Issuer will deliver only Rule 144A Definitive Notes that bear such legend, or will refuse to remove such legend, as the case may be, unless there is delivered to the Issuer and the Registrar such satisfactory evidence, which may include an opinion of counsel, as may reasonably be required by the Issuer that neither the legend nor the restrictions on transfer set forth therein are required to ensure compliance with the provisions of the Securities Act and the Investment Company Act.

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TAX CONSIDERATIONS The following is a general description of certain United States federal, Irish and Russian Federation tax considerations relating to the Notes. It does not purport to be a complete analysis of all tax considerations relating to the Notes, whether in those countries or elsewhere. Prospective purchasers of the Notes should consult their own advisers as to which countries tax laws could be relevant to acquiring, holding and disposing of the Notes and receiving payments of interest, principal and/or other amounts under such Notes and the consequences of such actions under the tax laws of those countries. This summary is based upon the law as in effect on the date of this Prospectus and is subject to any change in law that may take effect after such date. Also, investors should note that an appointment by an investor in the Notes, or any person through which an investor holds Notes, of a custodian, collection agent or similar person in relation to such Notes in any jurisdiction may have tax implications. Investors should consult their own tax advisers in relation to the tax consequences for them of any such appointment. U.S. Federal Income Taxation The discussion of U.S. tax matters set forth in this Prospectus was written in connection with the promotion or marketing of this offering and was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding tax-related penalties under U.S. federal, state or local tax law. Each taxpayer should seek advice based on its particular circumstances from an independent tax advisor. The following is a summary of certain U.S. federal income tax consequences of the acquisition, ownership and disposition of Notes by a U.S. Holder (as defined below). This summary deals only with purchasers of Notes that are U.S. Holders acquiring Notes in the offering at their Issue Price and that will hold the Notes as capital assets (generally, property held for investment). The discussion does not cover all aspects of U.S. federal income taxation that may be relevant to, or the actual tax effect that any of the matters described herein will have on, the acquisition, ownership or disposition of Notes by particular investors, and does not address state, local, non-U.S. or other tax laws. This summary also does not discuss all of the tax considerations that may be relevant to certain types of investors subject to special treatment under the U.S. federal income tax laws (such as financial institutions, insurance companies, investors liable for the alternative minimum tax, individual retirement accounts and other tax-deferred accounts, tax-exempt organisations, dealers in securities or currencies traders that elect to mark-to-market, investors that will hold the Notes as part of straddles, hedging transactions or conversion transactions for U.S. federal income tax purposes or investors whose functional currency is not the U.S. dollar). As used herein, the term U.S. Holder means a beneficial owner of Notes that is, for U.S. federal income tax purposes, (i) an individual citizen or resident of the United States, (ii) a corporation created or organised under the laws of the United States, any state thereof or the District of Columbia (iii) an estate the income of which is subject to U.S. federal income tax without regard to its source or (iv) a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or the trust has elected to be treated as a domestic trust for U.S. federal income tax purposes. The U.S. federal income tax treatment of a partner in a partnership that holds Notes will depend on the status of the partner and the activities of the partnership. Prospective purchasers that are partnerships should consult their tax adviser concerning the U.S. federal income tax consequences to their partners of the acquisition, ownership and disposition of Notes by the partnership. The summary is based on the tax laws of the United States including the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations thereunder, published rulings and court decisions, all as of the date hereof and all subject to change at any time, possibly with retroactive effect. THE SUMMARY OF U.S. FEDERAL INCOME TAX CONSEQUENCES SET OUT BELOW IS FOR GENERAL INFORMATION ONLY. PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR TAX ADVISERS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF OWNING THE NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, NON-US AND OTHER FEDERAL TAX LAWS (INCLUDING THE MEDICARE CONTRIBUTION TAX) AND POSSIBLE CHANGES IN TAX LAW.

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U.S. Federal Income Tax Characterisation of the Notes No authority directly addresses the characterisation of securities like the Notes for U.S. federal income tax purposes and no ruling will be requested from the U.S. Internal Revenue Service (the IRS) as to the characterisation of the Notes for these purposes. To the extent relevant for U.S. federal income tax purposes, the Issuer intends to treat the Notes as indebtedness for these purposes consistent with their form. This characterisation is binding on all U.S. Holders unless the holder discloses on its U.S. federal income tax return that it is treating the Notes in a manner inconsistent with the Issuers characterisation. No assurance can be given that the IRS will not assert, or a court would not sustain, a position regarding the characterisation of the Notes that is contrary to this discussion. If the IRS were to challenge such characterisation, there is a risk that the Notes may be recast as equity interests in a partnership for U.S. federal income tax purposes. If this were to happen, certain U.S. Holders may be subject to additional reporting requirements and the failure to comply with such requirements could, in certain circumstances, subject those U.S. Holders to significant penalties. However, the consequences to U.S. Holders would otherwise be largely the same as the treatment contained in the discussion below. Prospective investors should seek advice from their own tax advisers as to the consequences to them of alternative characterisations of the Notes and the possibility that the Notes will be classified as equity interest in a partnership. The discussion below assumes that the Notes will be treated as debt for U.S. federal income tax purposes. Payments of Interest Interest on a Note will be taxable to a U.S. Holder as ordinary income at the time it is received or accrued, depending on the holders method of accounting for tax purposes. A U.S. Holder will also be required to include any withholding taxes paid, or deemed paid, on its behalf as ordinary income. Interest and any additional amount paid by the Issuer on the Notes generally will constitute income from sources outside the United States. Prospective purchasers should consult their tax advisers concerning the applicability of the foreign tax credit and source of income rules to income attributable to the Notes or the Loan. Purchase, Sale and Retirement of Notes A U.S. Holder will generally recognise gain or loss on the sale or retirement of a Note equal to the difference between the amount realised on the sale or retirement and the tax basis of the Note. A U.S. Holders tax basis in a Note will generally be its cost. The amount realised does not include the amount attributable to accrued but unpaid interest, which will be taxable as interest income to the extent not previously included in income. Gain or loss recognised on the sale or retirement of a Note will be capital gain or loss and will be long-term capital gain or loss if the U.S. Holders holding period in the Notes exceeds one year. The ability of U.S. Holders to use capital losses is subject to limitations. U.S. Holders should consult their tax advisers about how to account for payments that are not made in U.S. dollars. Gain or loss realised by a U.S. Holder on the sale or retirement of a Note generally will be U.S. source. Consequently, if a Russian or Irish tax is imposed on such gain, the U.S. Holder generally will not be able to use the corresponding foreign tax credit, unless the holder has other foreign-source income of the appropriate type in respect of which the credit may be used. The U.S. foreign tax credit rules are very complex. U.S. Holders should consult their tax advisers with respect to the application of these rules to their particular circumstances. Backup Withholding and Information Reporting In general, payments of interest and the proceeds of a sale, redemption or other disposition of, the Notes, payable to a U.S. Holder by a U.S. paying agent or other U.S. intermediary will be reported to the IRS and to the U.S. Holder as may be required under applicable regulations. Backup withholding will apply to these payments if the U.S. Holder fails to provide an accurate taxpayer identification number or certification of exempt status or fails to report all interest and dividends required to be shown on its U.S. federal income tax returns. Certain U.S. Holders are not subject to backup withholding. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the U.S. Holders U.S. federal income tax liability and may entitle the U.S. Holder to a refund, provided that the required information is timely furnished to the IRS.

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U.S. Holders should consult their own tax advisers regarding any reporting obligations they may have as a result of their acquisition, ownership or disposition of notes. Failure to comply with certain reporting obligations could result in the imposition of substantial penalties. Ireland The following is a summary of the principal Irish tax consequences for individuals and companies of ownership of the Notes based on the laws and practice of the Irish Revenue Commissioners currently in force in Ireland and may be subject to change. It deals with Noteholders who beneficially own their Notes thereon as an investment. Particular rules not discussed below may apply to certain classes of taxpayers holding Notes, such as dealers in securities, trusts etc. The summary does not constitute tax or legal advice and the comments below are of a general nature only. Prospective investors in the Notes should consult their professional advisers on the tax implications of the purchase, holding, redemption or sale of the Notes and the receipt of interest thereon under the laws of their country of residence, citizenship or domicile. Withholding Tax In general, tax at the standard rate of income tax (currently 20 per cent.), is required to be withheld from payments of Irish source interest which should include interest payable on the Notes. The Issuer will not be obliged to make a withholding or deduction for or on account of Irish income tax from a payment of interest on a Note where: (a) the Notes are Quoted Eurobonds i.e. securities which are issued by a company (such as the Issuer), which are listed on a recognised stock exchange (such as the Irish, London or Luxembourg Stock Exchanges) and which carry a right to interest; and (b) the person by or through whom the payment is made is not in Ireland, or if such person is in Ireland, either: (i) the Notes are held in a clearing system recognised by the Irish Revenue Commissioners; (DTC, Euroclear and Clearstream, Luxembourg are, amongst others, so recognised); or (ii) the Noteholder is not resident in Ireland and has made a declaration to a relevant person (such as a paying agent located in Ireland) in the prescribed form; and (c) one of the following conditions is satisfied: (i) the Noteholder is resident for tax purposes in Ireland; or (ii) the Noteholder is a pension fund, government body or other person (other than a person described in paragraph (c)(iv) below), who is resident in a Relevant Territory (as defined below) and who, under the laws of that territory is exempted from tax that generally applies to profits, income or gains in that territory; or (iii) the Noteholder is subject, without any reduction computed by reference to the amount of such interest or other distribution, to a tax in a Relevant Territory which generally applies to profits, income or gains received in that territory, by persons, from sources outside that territory; or (iv) the Noteholder is not a company which, directly or indirectly, controls the Issuer, is controlled by the Issuer, or is controlled by a third company which also directly or indirectly controls the Issuer, and neither the Noteholder, nor any person connected with the Noteholder, is a person or persons: (A) from whom the Issuer has acquired assets; (B) to whom the Issuer has made loans or advances; or (C) with whom the Issuer has entered into a swap agreement, where the aggregate value of such assets, loans, advances or swap agreements represents not less than 75 per cent. of the assets of the Issuer, or (v) the Issuer is not aware at the time of the issue of any Notes that any holder of those Notes is (i) a company of the type described in (c)(iv) above AND (ii) is not subject, without any reduction computed by reference to the amount of such interest or other distribution, to a

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tax in a relevant territory which generally applies to profits, income or gains received in that territory, by persons, from sources outside that territory, where for these purposes, the term Relevant Territory means a member state of the European Union (other than Ireland) or a country with which Ireland has signed a double tax treaty; and Swap Agreement means any agreement, arrangement or understanding that (i) provides for the exchange, on a fixed or contingent basis, of one or more payments based on the value, rate or amount of one or more interest rates, currencies, commodities, securities, instruments of indebtedness, indices, quantitative measures, or other financial or economic interests or property of any kind, or any interest therein or based on the value thereof, and (ii) transfers to a person who is a party to the agreement, arrangement or undertaking, or to a person connected with that person, in whole or in part, the financial risk associated with a future change in any such value, rate or amount without also conveying a current or future direct or indirect ownership interest in the asset (including any enterprise or investment pool) or liability that incorporates the financial risk so transferred. Thus, so long as the Notes continue to be quoted on the Irish Stock Exchange are held in DTC, Euroclear and/or Clearstream, Luxembourg, and one of the conditions set out in paragraph (c) above is met, interest on the Notes can be paid by any Paying Agent acting on behalf of the Issuer free of any withholding or deduction for or on account of Irish income tax. If the Notes continue to be quoted but cease to be held in a recognised clearing system, interest on the Notes may be paid without any withholding or deduction for or on account of Irish income tax provided such payment is made through a Paying Agent outside Ireland, and one of the conditions set out in paragraph (c) above is met. Encashment Tax Irish tax will be required to be withheld at the standard rate of income tax (currently 20 per cent.) from interest on any Note, where such interest is collected or realised by a bank or encashment agent in Ireland on behalf of any Noteholder. There is an exemption from encashment tax where the beneficial owner of the interest is not resident in Ireland and has made a declaration to this effect in the prescribed form to the encashment agent or bank. Income Tax Notwithstanding that a Noteholder may receive interest on the Notes free of withholding tax, the Noteholder may still be liable to pay Irish income tax with respect to such interest. Noteholders resident or ordinarily resident in Ireland who are individuals may be liable to pay Irish income tax, social insurance (PRSI) contributions and the universal charge in respect of interest they receive on the Notes. Interest paid on the Notes may have an Irish source and therefore may be within the charge to Irish income tax and levies. Ireland operates a self-assessment system in respect of income tax and any person, including a person who is neither resident nor ordinarily resident in Ireland, with Irish source income comes within its scope. There are a number of exemptions from Irish income tax available to certain non-residents. Firstly, interest payments made by the Issuer are exempt from income tax so long as the Issuer is a qualifying company for the purposes of Section 110 of the TCA, the recipient is not resident in Ireland and is resident in a Relevant Territory and, the interest is paid out of the assets of the Issuer. Secondly, interest payments made by the Issuer in the ordinary course of its business are exempt from income tax provided the recipient is not resident in Ireland and is a company which is either resident in a Relevant Territory which imposes a tax that generally applies to interest receivable in that Relevant Territory by companies from sources outside that Relevant Territory or, in respect of the interest is exempted from the charge to Irish income tax under the terms of a double tax agreement which is either in force or which is not yet in force but which will come into force once all ratification procedures have been completed. Thirdly, interest paid by the Issuer free of withholding tax under the quoted Eurobond exemption is exempt from income tax, where the recipient is a person not resident in Ireland and resident in a Relevant Territory. For these purposes, residence is determined under the terms of the relevant double taxation agreement or in any other case, the law of the country in which the recipient claims to be resident. Interest falling within the above exemptions is also exempt from the universal social charge.

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Notwithstanding these exemptions from income tax, a corporate recipient that carries on a trade in Ireland through a branch or agency in respect of which the Notes are held or attributed, may have a liability to Irish corporation tax on the interest. Relief from Irish income tax may also be available under the specific provisions of a double tax treaty between Ireland and the country of residence of the recipient. Interest on the Notes which does not fall within the above exemptions may be within the charge to Irish income tax. However, it is understood that the Irish Revenue Commissioners have, in the past, operated a practice not to take any action to pursue any liability to such tax in respect of persons who are not regarded as being resident in Ireland except where such persons have a taxable presence of some sort in Ireland or seek to claim any relief or repayment in respect of Irish tax. There can be no assurance that the Irish Revenue Commissioners will apply this practice in the case of any Noteholder. Capital Gains Tax A holder of Notes will not be subject to Irish tax on capital gains on a disposal of Notes unless such holder is either resident or ordinarily resident in Ireland or carries on a trade or business in Ireland through a branch or agency in respect of which the Notes were used or held. Capital Acquisitions Tax A gift or inheritance comprising of Notes will be within the charge to capital acquisitions tax (which subject to available exemptions and reliefs, is currently levied at 30 per cent.) if either (i) the disponer or the donee/successor in relation to the gift or inheritance is resident or ordinarily resident in Ireland (or, in certain circumstances, if the disponer is domiciled in Ireland irrespective of his residence or that of the donee/successor) on the relevant date or (ii) if the Notes are regarded as property situate in Ireland (i.e. if the Notes are physically located in Ireland or if the register of the Notes is maintained in Ireland). Stamp Duty No stamp duty or similar tax is imposed in Ireland (on the basis of an exemption provided for in Section 85(2)(c) to the Irish Stamp Duties Consolidation Act, 1999 so long as the Issuer is a qualifying company for the purposes of Section 110 of the TCA and the proceeds of the Notes are used in the course of the Issuers business), on the issue, transfer or redemption of the Notes. EU Directive on the Taxation of Savings Income The Council of the European Union has adopted a directive regarding the taxation of interest income known as the European Union Directive on the Taxation of Savings Income (Directive 2003/ 48/EC). Ireland has implemented the directive into national law. Accordingly, any Irish paying agent making an interest payment on behalf of the Issuer to an individual or certain residual entities resident in another Member State of the European or certain associated and dependent territories of a Member State will have to provide details of the payment and certain details relating to the Noteholder (including the Noteholders name and address) to the Irish Revenue Commissioners who in turn will provide such information to the competent authorities of the state or territory of residence of the individual or residual entity concerned. The Issuer, or certain other persons shall be entitled to require Noteholders to provide any information regarding their tax status, identity or residency in order to satisfy the disclosure requirements in Directive 2003/48/EC and Noteholders will be deemed by their subscription for Notes to have authorised the automatic disclosure of such information by the Issuer, or any other person to the relevant tax authorities. Russian Federation General The following is a general summary of certain Russian tax considerations relevant to the purchase, ownership and disposal of the Notes as well as taxation of interest payments under the Loan.

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The summary is based on the laws of the Russian Federation in effect on the date of this Prospectus (where these laws are subject to changes which could occur frequently, at short notice, and may have a retroactive effect). The summary does not seek to address the applicability of, and procedures in relation to, taxes levied by regions, municipalities or other non-federal level authorities of Russia or tax implications arising for the Noteholders applying special taxation regimes available under the Russian tax legislation. Similarly, this summary does not seek to address the availability of double tax treaty relief to and the eligibility for double tax treaty relief of any Noteholder in respect of income payable to that Noteholder on the Notes, or practical difficulties connected with claiming such double tax treaty relief. It does not include any comments on tax implications which could arise for the Noteholders in connection with entering into REPO or stock-lending transactions with the Notes or into term deals, derivatives or any similar types of transactions with the Notes. Many aspects of Russian tax law are subject to significant uncertainty and lack of interpretive guidance resulting in differing interpretations and inconsistent application thereon by the various authorities in practice. Further, provisions of Russian tax law applicable to financial instruments may be subject to more rapid and unpredictable changes (possibly with the retroactive effect) and inconsistent application than in jurisdictions with more developed capital markets and tax systems. In practice, the interpretation and application of tax laws and regulations by different tax inspectorates in Russia may be inconsistent or contradictory, and may result in the imposition of conditions, requirements or restrictions that are not explicitly stated by law. Furthermore, court rulings on tax or other related matters taken by different courts relating to the same or similar circumstances may also be inconsistent and contradictory. Prospective investors should consult their own tax advisors in relation to tax consequences relevant to investing in the Notes that may arise in their own particular circumstances. No representation with respect to the Russian tax consequences relevant to any particular Noteholder is made hereby. Taxation of the Notes For the purposes of this summary, a Non-Resident Noteholder means: a legal entity or an organisation in each case not organised under Russian laws which acquires, holds and disposes of the Notes otherwise than through its permanent establishment in Russia (the NonResident NoteholderLegal Entity); and an individual not actually present in Russia for an aggregate period of 183 calendar days or more in a period comprised of 12 consecutive months (who acquires, holds and disposes of the Notes (the Non-Resident NoteholderIndividual). Presence in Russia for Russian personal income tax purposes is not considered interrupted, if an individual departs from Russia for short periods of time (less than 6 months) for medical treatment or education purposes. Currently, the Russian Tax Code is generally interpreted by both the Russian tax authorities and taxpayers such that days of arrival as well as days of departure should be taken into account when calculating the total number of days of presence of an individual in Russia. However, Raspadskaya is aware of a court case where the court expressed the opinion that days of arrival should not be taken into account as opposed to days of departure. For the purposes of this summary, the term Resident Noteholder means any Noteholder (including any individual and any legal entity or an organisation) not qualifying as a Non-Resident Noteholder. For the purposes of this summary, the definitions of Resident Noteholder and Non-Resident Noteholder in respect of individuals are taken at face value based on the wording of Russian tax law as currently written. In practice, however, the application of the above formal residency definition by the tax authorities may differ depending on their position in each case. The law is currently worded in a way that implies the potential for a split year residency for individuals. However, both the Russian Ministry of Finance and the tax authorities have expressed the view that an individual should be either a tax resident or non-resident in Russia for the full calendar year. Consequently, if the travel pattern dictates a differing tax residency status for a part of the tax year, the application of Russian personal income tax residency rate may in practice be disallowed. This situation may be altered by the introduction of amendments to the provisions of the Russian Tax Code dealing with taxation of individuals, a change in the position of the tax authorities or by outcomes of tax controversy through the courts.

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Resident Noteholders Resident Noteholders will be subject to all applicable Russian taxes in respect of income realised by them in connection with the acquisition, ownership and/or disposal of the Notes (including interest received on the Notes). Resident Noteholders should consult their own tax advisors with regard to the effect that the acquisition, holding and/or disposal of the Notes may have on their tax position. Non-Resident NoteholdersLegal Entities Acquisition of the Notes Acquisition of the Notes by the Non-Resident NoteholdersLegal Entities (whether upon their issuance or in the secondary market) should not constitute a taxable event under Russian tax law. Consequently, the acquisition of the Notes should not trigger any Russian tax implications for the Non-Resident NoteholdersLegal Entities. Interest on the Notes Non-Resident NoteholdersLegal Entities generally should not be subject to any Russian taxes in respect of payment of interest on the Notes received from the Issuer. Taxation of interest on the Notes may however be affected by the tax treatment of interest on the Loan (see Taxation of interest on the Loan below). Sale or other disposal of the Notes Proceeds from the sale or other disposal of the Notes received by a Non-Resident NoteholderLegal Entity from a source within or outside Russia generally should not be subject to any Russian taxes. There is, however, some residual uncertainty regarding tax treatment of the portion of the sales or other disposal proceeds, that is attributable to accrued interest (if any) on the Notes. Subject to reduction or elimination under provisions of an applicable double tax treaty relating to interest income, the portion of sales or other disposal proceeds attributable to accrued interest, if received from a source within Russia by a Non-Resident NoteholderLegal Entity, may be subject to Russian withholding tax at the rate of 20 per cent. (or such other tax rate as may be effective at the time of payment), even if the sale or other disposal of the Notes results in a loss. Redemption of the Notes Non-Resident NoteholdersLegal Entities should not generally be subject to any Russian taxes in respect of the repayment of principal on the Notes received from the Issuer. Taxation of Non-Resident NoteholdersIndividuals Acquisition of the Notes Acquisition of the Notes by a Non-Resident NoteholderIndividual may constitute a taxable event for Russian personal income tax purposes pursuant to provisions of the Russian Tax Code relating to the material benefit (deemed income) received by individuals as a result of the acquisition of securities. In particular, if the acquisition price of the Notes is below the lower margin of the fair market value of the Notes calculated under a specific procedure for the determination of market prices of securities for Russian personal income tax purposes, the difference may become subject to Russian personal income tax at the rate of 30 per cent. (or such other tax rate as may be effective at the time of the acquisition). Taking into account that the Notes will be initially issued at par, these provisions are likely to be relevant for the acquisitions of the Notes in the secondary market only. Under the Russian tax legislation, taxation of income of a Non-Resident NoteholderIndividual will depend on whether this income is qualified as received from Russian or non-Russian sources. Since the Russian Tax Code does not contain any provisions in relation to how the related material benefit should be sourced, in practice, the Russian tax authorities may infer that such income should be considered as Russian source income if the Notes are purchased in Russia. In the absence of any additional guidance as to what should be considered as a purchase of securities in Russia, the Russian tax authorities may apply various criteria in order to determine the source of the related material benefit, including looking at the place of conclusion of the acquisition transaction, the location of the Issuer, or other similar criteria.

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There is no assurance therefore that as a result any material benefit received by a Non-Resident NoteholderIndividual in connection with the acquisition of the Notes will not become subject to taxation in Russia. Interest on the Notes Non-Resident NoteholdersIndividuals generally should not be subject to any Russian taxes in respect of payment of interest on the Notes received from the Issuer. Taxation of interest on the Notes may however be affected by the tax treatment of interest on the Loan (see Taxation of interest on the Loan below). Sale or other disposal of the Notes Subject to any available double tax treaty relief, if receipt of any proceeds from the sale or other disposal of the Notes by a Non-Resident NoteholderIndividual is classified as income from Russian sources for Russian personal income tax purposes, these proceeds will become subject to Russian personal income tax at the rate of 30 per cent. (or such other tax rate as may be effective at the time of payment). The tax will apply to the gross amount of sales or other disposal proceeds decreased by the amount of any available cost deductions (including the original acquisition costs and documented expenses related to the acquisition, holding and sale or other disposal of the Notes) provided that such documentation is duly executed and is provided to the person obliging to calculate and withhold the tax in a timely manner. There is a risk that, if the documentation supporting the cost deduction is deemed insufficient by the tax authorities or the person remitting the respective income to the Non-Resident NoteholdersIndividuals (where such person is considered as the tax agent obliging to calculate and withhold Russian personal income tax and remit it to the Russian budget), the deduction will be disallowed and the tax will apply to the gross amount of sales or other disposal proceeds. Since the Russian Tax Code does not contain any additional guidance as to when the sales or disposal proceeds should be deemed to be received from Russian sources, in practice the Russian tax authorities may infer that such income should be considered as Russian source income, if the Notes are sold or disposed in Russia. In absence of any additional guidance as to what should be considered as a sale or other disposal of securities in Russia, the Russian tax authorities may apply various criteria in order to determine the source of the sale or other disposal, including looking at the place of conclusion of the transaction, the location of the Issuer, or other similar criteria. There is no assurance therefore that as a result sales or disposal proceeds received by the Non-Resident Noteholders-Individuals will not become taxed in Russia. In certain circumstances if sales and/or disposal proceeds are paid to a Non-Resident Noteholder Individual by a licensed broker or an asset manager that is a Russian legal entity or organisation or any other person located in Russia (including a foreign company with a permanent establishment or any registered presence in Russia or by an individual entrepreneur located in Russia), which carries out operations for the benefit of the Non-Resident NoteholderIndividual under an agency agreement, a commission agreement or a commercial mandate agreement, the applicable Russian personal income tax at the rate of 30 per cent. (or such other tax rate as may be effective at the time of payment) will be withheld at source by that person considered as the tax agent. If the Notes are sold by a Non-Resident NoteholderIndividual to other legal entities, organisations or individuals, generally no Russian personal income tax should be withheld at source by these persons. There is however no assurance that such entities would not be willing to withhold Russian personal income tax under such circumstances. If the tax is not withheld at source, Non-Resident NoteholderIndividual will then be required to file a personal income tax return individually, report on the amount of income realised to the Russian tax authorities and apply for a deduction in the amount of the acquisition and other expenses related to the acquisition, holding and the sale or other disposal of the Notes confirmed by the supporting documentation. The applicable personal income tax will then have to be paid by the Non-Resident NoteholderIndividual on the basis of the filed personal income tax return. Under certain circumstances gains received and losses incurred by a Non-Resident Noteholder Individual as a result of the sale or other disposal of the Notes and other securities occurring within the same tax year may be aggregated for Russian personal income tax purposes which would affect the total amount of personal income tax payable by the Non-Resident NoteholderIndividual in Russia. There is also a risk that any gain derived by a Non-Resident NoteholderIndividual from the sale or other disposal of the Notes may be affected by changes in the exchange rate between the currency of the acquisition of the Notes, the currency of sale or other disposal of the Notes and roubles.

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Further there is also some uncertainty regarding tax treatment of the portion of the sales or other disposal proceeds derived by a Non-Resident NoteholderIndividual from Russian sources in connection with the sale or other disposal of the Notes that is attributable to accrued interest income (if any) on the Notes. The Russian tax authorities could argue that the portion of the sales or other disposal proceeds attributable to accrued interest provided that these sales or other disposal proceeds are derived from Russian sources should be subject to Russian personal income tax at the rate of 30 per cent. (or such other tax rate as may be effective at the time of payment), even if the sale or other disposal of the Notes results in a loss. Non-Resident NoteholdersIndividuals should consult their own tax advisors with respect to tax consequences arising in connection with the sale or other disposal of the Notes, including the receipt of sales or other disposal proceeds from a source within Russia upon the sale or other disposal of the Notes. Tax treaty relief The Russian Federation has concluded double tax treaties with a number of countries and honours some double tax treaties concluded by the former Union of Soviet Socialist Republics. These double tax treaties may contain provisions allowing to reduce or eliminate Russian income taxes applicable to income received by the Non-Resident Noteholders from Russian sources in connection with holding and sale or disposal of the Notes. In order to obtain the benefits available under the respective double tax treaty, a Non-Resident Noteholder will need to comply with the certification, information and reporting requirements being in force in Russia (relating, in particular, to the confirmation of its entitlement and eligibility to the respective double tax treaty benefits). Currently a Non-Resident NoteholderLegal Entity will need to provide the payer of income which is regarded a tax agent with a certificate of tax residence issued by the competent tax authority of the relevant treaty country in advance of payment of income. The certificate should confirm that the respective Non-Resident NoteholderLegal Entity is the tax resident of the relevant double tax treaty country (specifically for the purposes of the applicable double tax treaty). This certificate generally should be apostilled or legalised, bear notarised Russian translation and needs to be renewed on an annual basis. In practice a tax agent may request additional documents confirming the entitlement and eligibility of the Non-Resident NoteholderLegal Entity to the benefits of the relevant double tax treaty in relation to income concerned. There can be no assurance that the advance treaty relief will be available to the Non-Resident NoteholdersLegal Entities in practice. Under the Russian domestic tax legislation in order to enjoy benefits of the respective double tax treaty a Non-Resident NoteholderIndividual will have to provide the Russian tax authorities with a certificate of tax residence issued by the competent authorities of his/her country of tax residence. A Non-Resident NoteholderIndividual may also have to provide the Russian tax authorities with a confirmation from the relevant foreign tax authorities with respect to income received by it and the tax paid by it outside Russia in relation to income with respect to which the respective double tax treaty benefits are claimed. Such requirements in practice may be imposed even if they directly contradict provisions of the applicable double tax treaty. Technically, these requirements may mean that a Non-Resident NoteholderIndividual would not be able to rely on any double tax treaty until he or she pays the tax with respect to that income in the jurisdiction of his or her tax residency. Individuals in practice could not be able to obtain the advance treaty relief in relation to income derived by them from Russian sources, as it is very unlikely that the supporting documentation required for the treaty relief purposes would be provided to the Russian tax authorities and, consequently, the approval from the latter could be obtained, before the receipt of income occurs. Non-Resident Noteholders should consult their own tax advisors with respect to possible tax treaty relief and procedures for obtaining such relief with respect to any Russian taxes imposed in respect of interest income on the Notes or any income received in connection with the acquisition, sale or other disposal of the Notes. Refund of tax withheld If Russian withholding tax applicable to income derived from Russian sources by a Non-Resident NoteholderLegal Entity was withheld at source, despite the right of that Non-Resident Noteholder Legal Entity to rely on the benefits of the applicable double tax treaty allowing it not to pay the tax or allowing it to pay the tax at a reduced tax rate in relation to such income, a claim for a refund of the tax that was excessively withheld at source can be filed by that Non-Resident NoteholderLegal Entity with the Russian tax authorities within three years following the year in which the tax was withheld.

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If Russian personal income tax on income derived from Russian sources by a Non-Resident NoteholderIndividual was withheld at source despite the right of that Non-Resident Noteholder Individual to rely on the benefits of the applicable double tax treaty allowing not to pay the tax in Russia or allowing to pay the tax at a reduced tax rate in relation to such income, a claim for a refund of tax which was excessively withheld can be filed by that Non-Resident NoteholderIndividual with the Russian tax authorities within one year following the year in which the tax was withheld. Although the Russian Tax Code arguably contains the exhaustive list of documents and information which have to be provided by the foreign person to the Russian tax authorities for the tax refund purposes, the Russian tax authorities may, in practice, require a wide variety of documentation confirming the right of a Non-Resident Noteholder to obtain tax relief available under the applicable double tax treaty. Such documentation may not be explicitly required by the Russian Tax Code and may to a large extent depend on the position of local representatives of the tax inspectorates. In practice a Non-Resident Noteholder when seeking for a refund of Russian taxes excessively withheld at source may face similar difficulties as when trying to obtain an advance tax relief under the applicable double tax treaties, as discussed above. Obtaining a refund of Russian income taxes which were excessively withheld at source is therefore likely to be a time consuming process requiring many efforts and no assurance can be given that such refund will be granted to the Non-Resident Noteholders in practice. The Non-Resident Noteholders should consult their own tax advisors regarding procedures required to be fulfilled in order to obtain refund of Russian income taxes, which were excessively withheld at source. Taxation of interest on the Loan In general, interest payable on borrowed funds by a Russian legal entity to a non-resident legal entity or organisation having no registered presence and/or no permanent establishment in Russia are subject to Russian withholding tax at the rate of 20 per cent., which could be reduced or eliminated under the terms of an applicable double tax treaty. In particular, the Russia-Ireland double tax treaty generally allows to exempt interest income from Russian withholding tax provided that certain requirements are satisfied by their recipient in a timely manner. The application of tax benefits available under the Russia-Ireland double tax treaty however to interest payments on the Loan could be affected by the change in the interpretation by the Russian tax authorities of the concept of the factual/beneficial owner of income. See Risk FactorsRisks Related to the Notes and OfferingInterest payments on the Loan may be subject to Russian withholding tax.

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SUBSCRIPTION AND SALE Goldman Sachs International, Morgan Stanley & Co. International plc, TD Investments Limited and VTB Capital plc (together, the Joint Lead Managers) have, in a subscription agreement dated 20 April 2012 (the Subscription Agreement) and made between the Issuer, the Company and the Joint Lead Managers upon the terms and subject to the conditions contained therein, severally (and not jointly nor jointly and severally) agreed to subscribe and pay for the Notes at their issue price of 100 per cent. of their principal amount in the amounts set out below:
Manager Purchase commitment (US$)

Goldman Sachs International . . . . . . . . Morgan Stanley & Co. International plc . TD Investments Limited . . . . . . . . . . . . VTB Capital plc . . . . . . . . . . . . . . . . . .

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100,000,000 100,000,000 100,000,000 100,000,000 400,000,000

The Joint Lead Managers are entitled to commissions and reimbursement of expenses pursuant to the Subscription Agreement and a fees and expenses side agreement between, among others, the Issuer and the Joint Lead Managers. The Joint Lead Managers are entitled in certain circumstances to be released and discharged from their obligations under the Subscription Agreement prior to the closing of the issue of the Notes. United States of America The Securities have not been and will not be registered under the Securities Act, the securities laws or any State or other jurisdiction of the United States, and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and, in each case, in circumstances that will not require the Issuer to register under the Investment Company Act. Each Joint Lead Manager has severally (and not jointly nor jointly and severally) agreed that, except as permitted by the Subscription Agreement, it will not offer, sell or deliver the Notes (i) as part of their distribution at any time or (ii) otherwise until 40 days after the later of the commencement of the offering and the Closing Date (the Distribution Compliance Period), within the United States or to, or for the account or benefit of, U.S. persons, and it will have sent to each dealer to which it sells Notes (other than a sale pursuant to Rule 144A) during the Distribution Compliance Period a confirmation or other notice setting forth the restrictions on offers and sales of the Notes within the United States or to, or for the account or benefit of, U.S. persons. In addition, until 40 days after the commencement of the offering of the Notes, an offer or sale of Notes within the United States by a dealer that is not participating in the offering may violate the registration requirements of the Securities Act if such offer or sale is made otherwise than in accordance with Rule 144A. Terms used in this section have the meanings given to them by Regulation S. Notes offered and sold outside the United States to non-U.S. persons may be sold in reliance on Regulation S. The Subscription Agreement provides that the Joint Lead Managers may directly or through their respective U.S. broker-dealer affiliates arrange for the offer and resale of Notes only to persons whom they reasonably believe are QIBs and QPs who can represent that: (a) they are QPs who are QIBs within the meaning of Rule 144A; (b) they are not broker-dealers who own and invest on a discretionary basis less than US$25 million in securities of unaffiliated issuers; (c) they are not participant-directed employee plans, such as a 401(k) plan; (d) they are acting for their own account, or the account of one or more QIBs each of which is also a QP; (e) they are not formed for the purpose of investing in the Issuer of the Notes; (f) each account for which they are purchasing will hold and transfer at least US$200,000 in principal amount of Notes at any time; (g) they understand that the Issuer may receive a list of participants holding positions in its securities from one or more book-entry depositaries; and (h) they will provide notice of the transfer restrictions set forth in this Prospectus to any subsequent transferees. The Issuer and the Joint Lead Managers reserve the right to reject any offer to purchase the Notes, in whole or in part, for any reason.

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United Kingdom Each Joint Lead Manager has severally (and not jointly nor jointly and severally) represented, warranted and agreed that: (a) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000 (the FSMA)) received by it in connection with the issue or sale of any Notes in circumstances in which section 21(1) of the FSMA does not apply to the Issuer; and (b) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Notes in, from or otherwise involving the United Kingdom. Russian Federation Each Joint Lead Manager severally (and not jointly nor jointly and severally) acknowledges that no Russian prospectus has been registered or is intended to be registered with respect to the Notes and the Notes have not been and are not intended to be registered in the Russian Federation. Consequently, each Joint Lead Manager represents, warrants and agrees with the Issuer, the Company and each of the other Joint Lead Managers that it and its affiliates have not offered or sold or otherwise transferred, and will not offer or sell or otherwise transfer as part of their initial distribution or at any time thereafter, any Notes to or for the benefit of any persons (including legal entities) resident, incorporated, established or having their usual residence in the Russian Federation unless and to the extent otherwise permitted under Russian law. Information provided in this Prospectus is not an offer, or invitation to make offers, to sell, exchange or otherwise transfer the Notes in the Russian Federation or to or for the benefit of any Russian persons or entities unless and to the extent otherwise permitted by Russian law. Since no Russian prospectus has been registered or is intended to be registered with the Federal Service for Financial Markets of the Russian Federation with respect to the Notes, no person should at any time carry out any activities in breach of the restrictions set out above and applicable Russian law. Ireland Each Joint Lead Manager has severally (and not jointly nor jointly and severally) represented, warranted and agreed that: (a) it will not underwrite the issue of, or place the Notes, otherwise than in conformity with the provisions of the European Communities (Markets in Financial Instruments) Regulations 2007 (Nos. 1 to 3), including, without limitation, Regulations 7 and 152 thereof, or any codes of conduct used in connection therewith and the provisions of the Investor Compensation Act 1998; (b) it will not underwrite the issue of, or place, the Notes, otherwise than in conformity with the provisions of the Central Bank Acts 1942 - 2010 (as amended) and any codes of conduct rules made under Section 117(1) of the Central Bank Act 1989; (c) it will not underwrite the issue of, or place, or do anything in Ireland in respect of the Notes otherwise than in conformity with the provisions of the Prospectus Directive (2003/71/EC) Regulations 2005 and any rules issued under Section 51 of the Investment Funds, Companies and Miscellaneous Provisions Act 2005, by the Central Bank; and (d) it will not underwrite the issue of, place or otherwise act in Ireland in respect of the Notes, otherwise than in conformity with the provisions of the Market Abuse (Directive 2003/6/EC) Regulations 2005 and any rules issued under Section 34 of the Investment Funds, Companies and Miscellaneous Provisions Act 2005 by the Central Bank. General Each Joint Lead Manager has severally (and not jointly nor jointly and severally) undertaken that it has, to the best of its knowledge and belief, complied and will comply in all material respects with applicable laws and regulations in each jurisdiction in which it offers, sells or delivers Notes or distributes this Prospectus (and any amendments thereof and supplements thereto) or any other offering or publicity material relating to the Notes, the Issuer or the Company.

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Certain of the Joint Lead Managers have, directly or indirectly through affiliates, provided investment and commercial banking, financial advisory and other services to the Issuer, the Borrower and their affiliates from time to time, for which they have received monetary compensation. Certain of the Joint Lead Managers may from time to time also enter into swap and other derivative transactions with the Issuer, the Borrower and their affiliates. In addition, certain of the Joint Lead Managers and their affiliates may in the future engage in investment banking, commercial banking, financial or other advisory transactions with the Issuer, the Borrower or their affiliates. The Company is a party to the Subscription Agreement and has given certain representations and warranties, covenants and indemnities to the Joint Lead Managers and the Issuer therein. Other than the approval of the Prospectus by the Central Bank, no action has been or will be taken in any jurisdiction by the Issuer, the Company or any Joint Lead Manager that would, or is intended to, permit a public offering of the Notes, or possession or distribution of this Prospectus or any other offering material, in any country or jurisdiction where action for that purpose is required. Persons into whose hands this Prospectus comes are required by the Company, the Issuer and the Joint Lead Managers to comply with all applicable laws and regulations in each country or jurisdiction in which they purchase, offer, sell or deliver Notes or have in their possession, distribute or publish this Prospectus or any other offering material relating to the Notes, in all cases at their own expense.

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TRANSFER RESTRICTIONS Rule 144A Notes Each purchaser of Rule 144A Notes within the United States, by accepting delivery of this Prospectus and the Notes, will be deemed to have represented, agreed and acknowledged that: 1. it is (a) a QIB that is also a QP; (b) not a broker-dealer which owns and invests on a discretionary basis less than US$25 million in securities of unaffiliated issuers; (c) not a participant-directed employee plan, such as a 401(k) plan; (d) acquiring such Note for its own account, or for the account of a QIB that is also a QP; (e) not formed for the purpose of investing in the Issuer; and (f) aware, and each beneficial owner of such Notes has been advised, that the seller of such Notes may be relying on the exemption from the provision of section 5 of the Securities Act provided by Rule 144A, and the Issuer is relying on an exemption from the Investment Company Act provided by section 3(c)(7) thereof; it will (a) along with each account for which it is purchasing, hold and transfer beneficial interests in the Rule 144A Notes in a principal amount that is not less than US$200,000; and (b) provide notice of these transfer restrictions to any subsequent transferees. In addition, it understands that the Issuer may receive a list of participants holding positions in its securities from one or more book-entry depositaries; it understands that the Rule 144A Notes have not been and will not be registered under the Securities Act and may not be offered, sold, pledged or otherwise transferred except (a) in accordance with Rule 144A to a person that it or any person acting on its behalf reasonably believes is a QIB that is also a QP purchasing for its own account or for the account of one or more QIBs, each of which is also a QP; or (b) in an offshore transaction to non U.S. persons in accordance with Rule 903 or 904 of Regulation S, in each case in accordance with any applicable securities laws of any state or another jurisdiction of the United States; it understands that the Issuer has the power under the Trust Deed to compel any beneficial owner of Rule 144A Notes that is within the United States or is a U.S. person and is not a QIB and also a QP to sell its interest in the Rule 144A Notes, or may sell such interest on behalf of such owner. The Issuer has the right to refuse to honour the transfer of an interest in the Rule 144A Notes to a U.S. person who is not a QIB and also a QP; it understands that the Rule 144A Notes, unless otherwise agreed between the Issuer and the Trustee in accordance with applicable law, will bear a legend to the following effect: THIS NOTE AND THE LOAN IN RESPECT THEREOF HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT) OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) IN ACCORDANCE WITH RULE 144A UNDER THE SECURITIES ACT (RULE 144A) TO A PERSON THAT THE HOLDER OR ANY PERSON ACTING ON ITS BEHALF REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A (A QIB) THAT IS ALSO A QUALIFIED PURCHASER (A QP) WITHIN THE MEANING OF SECTION 2(A)(51) OF THE U.S. INVESTMENT COMPANY ACT OF 1940, AS AMENDED (THE INVESTMENT COMPANY ACT) PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ONE MORE QIBS, EACH OF WHICH IS A QP WHO THE HOLDER HAS INFORMED, IN EACH CASE, THAT SUCH OFFER, SALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, AND IN AN AMOUNT FOR EACH ACCOUNT OF NOT LESS THAN US$200,000 PRINCIPAL AMOUNT OF NOTES AND THAT CAN REPRESENT, IN EACH CASE, THAT IT: (A) IS A QIB THAT IS ALSO A QP; (B) IS NOT A BROKER-DEALER WHICH OWNS AND INVESTS ON A DISCRETIONARY BASIS LESS THAN US$25 MILLION IN SECURITIES OF UNAFFILIATED ISSUERS; (C) IS NOT A PARTICIPANT-DIRECTED EMPLOYEE PLAN, SUCH AS A 401(K) PLAN; (D) WAS NOT FORMED FOR THE PURPOSE OF INVESTING IN THE ISSUER OF THIS NOTE; (E) IS ACQUIRING THIS NOTE FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB THAT IS ALSO A QP, IN A PRINCIPAL AMOUNT THAT IS NOT LESS THAN US$200,000 IN RELIANCE ON RULE 144A; (F) UNDERSTANDS THAT THE ISSUER MAY RECEIVE

2.

3.

4.

5.

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A LIST OF PARTICIPANTS HOLDING POSITIONS IN ITS SECURITIES FROM ONE OR MORE BOOK-ENTRY DEPOSITARIES; AND (G) WILL PROVIDE NOTICE OF THE FOREGOING TRANSFER RESTRICTIONS TO ANY SUBSEQUENT TRANSFEREE; OR (2) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR 904 OF REGULATION S UNDER THE SECURITIES ACT (REGULATION S) TO OR FOR THE ACCOUNT OR BENEFIT OF A PERSON KNOWN TO THE TRANSFEROR NOT TO BE A U.S. PERSON (AS DEFINED IN REGULATION S), BY PRE-ARRANGEMENT OR OTHERWISE, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES. THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE NOTES IN RESPECT HEREOF OF THE RESALE RESTRICTIONS REFERRED TO ABOVE. TRANSFER IN VIOLATION OF THE FOREGOING WILL BE OF NO FORCE OR EFFECT, WILL BE VOID AB INITIO, AND WILL NOT OPERATE TO TRANSFER ANY RIGHTS TO THE TRANSFEREE, NOTWITHSTANDING ANY INSTRUCTIONS TO THE CONTRARY TO THE ISSUER OF THIS NOTE, THE TRUSTEE OR ANY INTERMEDIARY. NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF ANY EXEMPTION UNDER THE SECURITIES ACT FOR RESALES OF THIS NOTE. THE BENEFICIAL OWNER HEREOF HEREBY ACKNOWLEDGES THAT IF AT ANY TIME WHILE IT HOLDS AN INTEREST IN THIS NOTE IT IS A U.S. PERSON WITHIN THE MEANING OF REGULATION S THAT IS NOT BOTH A QIB AND A QP, THE ISSUER MAY (1) COMPEL IT TO SELL ITS INTEREST IN THIS NOTE TO A PERSON WHO IS (A) A U.S. PERSON WHO IS A QIB AND ALSO A QP AND THAT IS, IN EACH CASE, OTHERWISE QUALIFIED TO PURCHASE THIS NOTE IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OR (B) OUTSIDE THE UNITED STATES AND IS NOT A U.S. PERSON WITHIN THE MEANING OF REGULATION S OR (2) COMPEL THE BENEFICIAL OWNER TO SELL ITS INTEREST IN THIS NOTE TO THE COMPANY, THE ISSUER OR AN AFFILIATE OF EITHER OR TRANSFER ITS INTEREST IN THIS NOTE TO A PERSON DESIGNATED BY OR ACCEPTABLE TO THE ISSUER, IN ANY CASE, AT A PRICE EQUAL TO THE LESSER OF (X) THE PURCHASE PRICE THEREFOR PAID BY THE BENEFICIAL OWNER, (Y) 100 PER CENT. OF THE PRINCIPAL AMOUNT THEREOF OR (Z) THE FAIR MARKET VALUE THEREOF. THE ISSUER HAS THE RIGHT TO REFUSE TO HONOUR A TRANSFER OF AN INTEREST IN THIS NOTE TO A U.S. PERSON WHO IS NOT A QIB AND ALSO A QP. THE ISSUER HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE INVESTMENT COMPANY ACT. EACH BENEFICIAL OWNER HEREOF REPRESENTS AND WARRANTS THAT FOR SO LONG AS IT HOLDS THIS NOTE OR ANY INTEREST HEREIN: (1) IT IS NOT, AND IT IS NOT USING THE ASSETS OF, A BENEFIT PLAN INVESTOR AS DEFINED IN SECTION 3(42) OF THE UNITED STATES EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (ERISA); (2) IT IS NOT AND IS NOT USING THE ASSETS OF A GOVERNMENTAL PLAN (AS DEFINED IN SECTION 3(32) OF ERISA), CHURCH PLAN (AS DEFINED IN SECTION 3(33) OF ERISA), OR NON-U.S. PLAN (AS DESCRIBED IN SECTION 4(B)(4) OF ERISA) SUBJECT TO LAWS WHICH ARE SUBSTANTIALLY SIMILAR TO THE PROHIBITED TRANSACTION PROVISIONS OF ERISA OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, UNLESS THE PURCHASE AND HOLDING OF THIS NOTE WILL NOT VIOLATE SUCH SIMILAR LAW; AND (3) IT WILL NOT SELL OR OTHERWISE TRANSFER ANY NOTE OR INTEREST THEREIN TO ANY PERSON UNLESS THE SAME FOREGOING REPRESENTATIONS, WARRANTIES AND COVENANTS ARE DEEMED TO APPLY TO THAT PERSON; 6. it understands and acknowledges that its purchase and holding of such Rule 144A Notes constitutes a representation and agreement by it that at the time of its purchase and throughout the period in which it holds such Rule 144A Notes or any interest therein: (a) it is not a benefit plan investor as defined in Section 3(42) of ERISA, as amended; (b) it is not and is not using the assets of a governmental plan (as defined in Section 3(32) of ERISA), church plan (as defined in Section 3(33) of ERISA), or non-U.S. plan (as described in Section 4(b)(4) of ERISA) subject to

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laws which are substantially similar to the prohibited transaction provisions of ERISA or Section 4975 of the Internal Revenue Code of 1986, as amended, unless the purchase and holding of such Rule 144A Notes will not violate such similar law; and (c) it will not sell or otherwise transfer any such Rule 144A Note or interest to any person unless the same foregoing representations and warranties are deemed to apply to that person; 7. it acknowledges that the Issuer, the Company, the Registrar, the Joint Lead Managers and their affiliates, and others will rely upon the truth and accuracy of the foregoing acknowledgements, representations and agreements and agrees that, if any of the acknowledgements, representations or agreements deemed to have been made by it by its purchase of Rule 144A Notes is no longer accurate, it shall promptly notify the Issuer, the Company and the Joint Lead Managers. If it is acquiring any Notes as a fiduciary or agent for one or more investor accounts, it represents that it has sole investment discretion with respect to each of those accounts and that it has full power to make the foregoing acknowledgements, representations and agreements on behalf of each account; it understands that the Rule 144A Notes will be evidenced by the Rule 144A Global Note. Before any interest in the Rule 144A Global Note may be offered, sold, pledged or otherwise transferred to a person who takes delivery in the form of an interest in the Regulation S Global Note, it will be required to provide a Transfer Agent with a written certification (in the form provided in the Agency Agreement) as to compliance with the foregoing acknowledgements, representations and agreements and applicable securities laws; and it is relying on the information contained in this Prospectus in making its investment decision with respect to the Rule 144A Notes. It acknowledges that none of the Issuer, the Company or the Joint Lead Managers has made any representation to it with respect to the Issuer or the Company or the offering or sale of the Rule 144A Notes, other than the information contained in this Prospectus which has been delivered to it and upon which it is relying in making its investment decision with respect to the Rule 144A Notes. It has had access to such financial and other information concerning the Issuer and the Company and the Rule 144A Notes as it has deemed necessary in connection with its decision to purchase the Rule 144A Notes, including an opportunity to ask questions of and request information from the Issuer, the Company and the Joint Lead Managers.

8.

9.

Prospective purchasers are hereby notified that sellers of the Notes may be relying on the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A. Regulation S Notes Each purchaser of Regulation S Notes outside the United States pursuant to Regulation S and each subsequent purchaser of such Regulation S Notes in resales prior to the expiration of the Distribution Compliance Period, by accepting delivery of this Prospectus and the Regulation S Notes, will be deemed to have represented, agreed and acknowledged that: 1. it is, or at the time Regulation S Notes are purchased will be, the beneficial owner of such Regulation S Notes and (a) it is not a U.S. person and it is located outside the United States (within the meaning of Regulation S); and (b) it is not an affiliate of the Issuer, the Company or a person acting on behalf of such an affiliate; it understands that such Regulation S Notes have not been and will not be registered under the Securities Act and that, prior to the expiration of the distribution compliance period, it will not offer, sell, pledge or otherwise transfer such Regulation S Notes except: (a) in accordance with Rule 144A to a person that it or any person acting on its behalf reasonably believes is a QIB that is also a QP purchasing for its own account or the account of a QIB that is also a QP; or (b) to a non-U.S. person in an offshore transaction in accordance with Rule 903 or Rule 904 of Regulation S, in each case in accordance with any applicable securities laws of any State of the United States; the Issuer, the Company, the Registrar, the Joint Lead Managers and their affiliates, and others will rely upon the truth and accuracy of the foregoing acknowledgments, representations and agreements;

2.

3.

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4.

it understands that the Regulation S Notes offered in reliance on Regulation S will be represented by the Regulation S Global Note. Prior to the expiration of the Distribution Compliance Period, before any interest in the Regulation S Global Note may be offered, sold, pledged or otherwise transferred to a person who takes delivery in the form of an interest in the Rule 144A Global Note, it will be required to provide a Transfer Agent with a written certification (in the form provided in the Agency Agreement) as to compliance with applicable securities laws; it understands that the Regulation S Notes, unless otherwise agreed between the Issuer and the Trustee in accordance with applicable law, will bear a legend to the following effect: THIS NOTE AND THE LOAN IN RESPECT THEREOF HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT) OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHEWISE TRANSFERRED WITHIN THE UNITED STATES EXCEPT PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT. EACH BENEFICIAL OWNER HEREOF REPRESENTS AND WARRANTS THAT FOR SO LONG AS IT HOLDS THIS NOTE OR ANY INTEREST HEREIN (1) IT IS NOT, AND IT IS NOT USING THE ASSETS OF, A BENEFIT PLAN INVESTOR AS DEFINED IN SECTION 3(42) OF THE UNITED STATES EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (ERISA); (2) IT IS NOT AND IS NOT USING THE ASSETS OF A GOVERNMENTAL PLAN (AS DEFINED IN SECTION 3(32) OF ERISA), CHURCH PLAN (AS DEFINED IN SECTION 3(33) OF ERISA), OR NON-U.S. PLAN (AS DESCRIBED IN SECTION 4(B)(4) OF ERISA) SUBJECT TO LAWS WHICH ARE SUBSTANTIALLY SIMILAR TO THE PROHIBITED TRANSACTION PROVISIONS OF ERISA OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, UNLESS THE PURCHASE AND HOLDING OF THIS NOTE WILL NOT VIOLATE SUCH SIMILAR LAW; AND (3) IT WILL NOT SELL OR OTHERWISE TRANSFER ANY NOTE OR INTEREST THEREIN TO ANY PERSON WITHOUT FIRST OBTAINING THE SAME FOREGOING REPRESENTATIONS, WARRANTIES AND COVENANTS FROM THAT PERSON; AND

5.

6.

it understands and acknowledges that its purchase and holding of such Regulation S Notes constitutes a representation and agreement by it that at the time of its purchase and throughout the period in which it holds such Regulation S Notes or any interest therein (a) it is not a benefit plan investor as defined in Section 3(42) of ERISA, as amended; (b) it is not and is not using the assets of a governmental plan (as defined in Section 3(32) of ERISA), church plan (as defined in Section 3(33) of ERISA), or non-U.S. plan (as described in Section 4(b)(4) of ERISA) subject to laws which are substantially similar to the prohibited transaction provisions of ERISA or Section 4975 of the Internal Revenue Code of 1986, as amended, unless the purchase and holding of such Regulation S Notes will not violate such similar law; and (c) it will not sell or otherwise transfer any such Regulation S Note or interest to any person unless the same foregoing representations and warranties are deemed to apply to that person.

Book-Entry Procedures for the Global Notes Custodial and depository links are to be established between DTC, Euroclear and Clearstream, Luxembourg to facilitate the initial issue of the Notes and cross market transfers of the Notes associated with secondary market trading. See Book-Entry Ownership and Settlement and Transfer of Notes below. Investors may hold their interests in the Global Notes directly through DTC, Euroclear or Clearstream, Luxembourg if they are accountholders (Direct Participants) or indirectly (Indirect Participants and together with Direct Participants, Participants) through organisations which are accountholders therein. Euroclear and Clearstream, Luxembourg Euroclear and Clearstream, Luxembourg each hold securities for their customers and facilitate the clearance and settlement of securities transactions through electronic book-entry transfer between their

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respective accountholders. Indirect access to Euroclear and Clearstream, Luxembourg is available to other institutions which clear through or maintain a custodial relationship with an accountholder of either system. Euroclear and Clearstream, Luxembourg provide various services including safekeeping, administration, clearance and settlement of internationally traded securities and securities lending and borrowing. Euroclear and Clearstream, Luxembourg also deal with domestic securities markets in several countries through established depository and custodial relationships. Euroclear and Clearstream, Luxembourg have established an electronic bridge between their two systems across which their respective customers may settle trades with each other. Their customers are worldwide financial institutions including underwriters, securities brokers and dealers, banks, trust companies and clearing corporations. DTC DTC is a limited purpose trust company organised under the laws of the State of New York, a banking organisation under the laws of the State of New York, a member of the U.S. Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial code and a clearing agency registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its Participants and to facilitate the clearance and settlement of securities transactions between Participants through electronic computerised book-entry changes in accounts of its Participants, thereby eliminating the need for physical movement of certificates. Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organisations. Indirect access to DTC is available to others, such as banks, securities brokers, dealers and trust companies, which clear through or maintain a custodial relationship with a DTC Direct Participant, either directly or indirectly. Investors may hold their interests in the Rule 144A Global Note directly through DTC if they are Direct Participants in the DTC system, or as Indirect Participants through organisations which are Direct Participants in such system. DTC has advised the Issuer that it will take any action permitted to be taken by a holder of Notes only at the direction of one or more Direct Participants and only in respect of such portion of the aggregate principal amount of the Rule 144A Global Note as to which such Participant or Participants has or have given such direction. However, in the circumstances described under Summary of Provisions Relating to the Notes while in Global Form, DTC will surrender the Rule 144A Global Note for exchange for Definitive Notes (which Definitive Notes will bear the legend applicable to transfers pursuant to Rule 144A). Book-Entry Ownership Euroclear and Clearstream, Luxembourg The Regulation S Global Note representing the Regulation S Notes will have an ISIN, a Common Code and a CUSIP number and will be registered in the name of a nominee for, and deposited with a common depositary on behalf of, Euroclear and Clearstream, Luxembourg. The address of Euroclear is 1 Boulevard du Roi Albert II, 1210 Brussels, Belgium, and the address of Clearstream, Luxembourg is 42 Avenue JF Kennedy, L-1855, Luxembourg. DTC The Rule 144A Global Note representing the Rule 144A Notes will have an ISIN, a Common Code and a CUSIP number and will be deposited with a custodian (the DTC Custodian) for, and registered in the name of Cede & Co. as nominee of, DTC. The DTC Custodian and DTC will electronically record the principal amount of the Notes held within the DTC system. The address of DTC is 55 Water Street, New York, New York 10041, United States of America. Relationship of Participants with Clearing Systems Each of the persons shown in the records of DTC, Euroclear, Clearstream, Luxembourg as the holder of a Note evidenced by a Global Note must look solely to DTC, Euroclear or Clearstream, Luxembourg (as the case may be) for his share of each payment made by the Issuer to the holder of such Global Note and in relation to all other rights arising under such Global Note, subject to and in accordance with the respective rules and procedures of DTC, Euroclear or Clearstream, Luxembourg (as the case may be). The Issuer expects that, upon receipt of any payment in respect of Notes evidenced by a Global Note, the common depositary by whom such Note is held, or the nominee in whose name it is registered, will

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immediately credit the relevant Participants or accountholders accounts in the relevant clearing system with payments in amounts proportionate to their respective beneficial interests in the principal amount of the relevant Global Note as shown on the records of the relevant common depositary or its nominee. The Issuer also expects that payments by Direct Participants in any clearing system to owners of beneficial interests in any Global Note held through such Direct Participants in any clearing system will be governed by standing instructions and customary practices. Save as aforesaid, such persons shall have no claim directly against the Issuer in respect of payments due on the Notes for so long as the Notes are evidenced by such Global Note, and the obligations of the Issuer will be discharged by payment to the registered holder, as the case may be, of such Global Note in respect of each amount so paid. None of the Issuer, the Trustee or any Agent (as defined in the Terms and Conditions of the Notes) will have any responsibility or liability for any aspect of the records relating to or payments made on account of ownership interests in any Global Note or for maintaining, supervising or reviewing any records relating to such ownership interests. Settlement and Transfer of Notes Subject to the rules and procedures of each applicable clearing system, purchases of Notes held within a clearing system must be made by or through Direct Participants, which will receive a credit for such Notes on the clearing systems records. The ownership interest of each actual purchaser of each such Note (the Beneficial Owner) will in turn be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from any clearing system of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which such Beneficial Owner entered into the transaction. Transfers of ownership interests in Notes held within the clearing system will be effected by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in such Notes, unless and until interests in any Global Note held within a clearing system are exchanged for Definitive Notes. No clearing system has knowledge of the actual Beneficial Owners of the Notes held within such clearing system, and its records will reflect only the identity of the Direct Participants to whose accounts such Notes are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by the clearing systems to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. The laws of some jurisdictions may require that certain persons take physical delivery in definitive form of securities. Consequently, the ability to transfer interests in a Global Note to such persons may be limited. As DTC can only act on behalf of Direct Participants, who in turn act on behalf of Indirect Participants, the ability of a person having an interest in the Rule 144A Global Note to pledge such interest to persons or entities that do not participate in DTC, or otherwise take actions in respect of such interest, may be affected by a lack of physical certificate in respect of such interest. Trading between Euroclear and/or Clearstream, Luxembourg Participants Secondary market sales of book-entry interests in the Notes held through Euroclear or Clearstream, Luxembourg to purchasers of book-entry interests in the Notes held through Euroclear or Clearstream, Luxembourg will be conducted in accordance with the normal rules and operating procedures of Euroclear and Clearstream, Luxembourg and will be settled using the procedures applicable to conventional Eurobonds. Trading between DTC Participants Secondary market sales of book-entry interests in the Notes between DTC Participants will occur in the ordinary way in accordance with DTC rules and will be settled using the procedures applicable to United States corporate debt obligations in DTCs same-day funds settlement system in same-day funds, if payment is effected in U.S. dollars, or free of payment, if payment is not effected in U.S. dollars. Where

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payment is not effected in U.S. dollars, separate payment arrangements outside DTC are required to be made between the DTC Participants. Trading between DTC seller and Euroclear/Clearstream, Luxembourg purchaser When book-entry interests in Notes are to be transferred from the account of a DTC Participant holding a beneficial interest in the Rule 144A Global Note to the account of a Euroclear or Clearstream, Luxembourg accountholder wishing to purchase a beneficial interest in the Regulation S Global Note (subject to the certification procedures provided in the Agency Agreement), the DTC Participant will deliver instructions for delivery to the relevant Euroclear or Clearstream, Luxembourg accountholder to DTC by 12 noon, New York time, on the settlement date. Separate payment arrangements are required to be made between the DTC Participant and the relevant Euroclear or Clearstream, Luxembourg Participant. On the settlement date, the DTC Custodian of the Rule 144A Global Note will instruct the Registrar to: (i) decrease the amount of Notes registered in the name of Cede & Co. and evidenced by the Rule 144A Global Note of the relevant class; and (ii) increase the amount of Notes registered in the name of the nominee of the common depositary for Euroclear and Clearstream, Luxembourg and evidenced by the Regulation S Global Note. Book-entry interests will be delivered free of payment to Euroclear or Clearstream, Luxembourg, as the case may be, for credit to the relevant accountholder on the first business day following the settlement date. Trading between Euroclear/Clearstream, Luxembourg seller and DTC purchaser When book-entry interests in the Notes are to be transferred from the account of a Euroclear or Clearstream, Luxembourg accountholder to the account of a DTC Participant wishing to purchase a beneficial interest in the Rule 144A Global Note (subject to the certification procedures provided in the Agency Agreement), the Euroclear or Clearstream, Luxembourg Participant must send to Euroclear or Clearstream, Luxembourg delivery free of payment instructions by 7.45 p.m., Brussels or Luxembourg time, one business day prior to the settlement date. Euroclear or Clearstream, Luxembourg, as the case may be, will in turn transmit appropriate instructions to the common depositary for Euroclear and Clearstream, Luxembourg and the Registrar to arrange delivery to the DTC Participant on the settlement date. Separate payment arrangements are required to be made between the DTC Participant and the relevant Euroclear or Clearstream, Luxembourg accountholder, as the case may be. On the settlement date, the common depositary for Euroclear and Clearstream, Luxembourg will: (a) transmit appropriate instructions to the DTC Custodian of the Rule 144A Global Note who will in turn deliver such book-entry interests in the Notes free of payment to the relevant account of the DTC Participant; and (b) instruct the Registrar to (i) decrease the amount of Notes registered in the name of the nominee of the common depositary for Euroclear and Clearstream, Luxembourg and evidenced by the Regulation S Global Note; and (ii) increase the amount of Notes registered in the name of Cede & Co. and evidenced by the Rule 144A Global Note. Although DTC, Euroclear and Clearstream, Luxembourg have agreed to the foregoing procedures in order to facilitate transfers of beneficial interests in Global Notes among Participants and accountholders of DTC, Euroclear and Clearstream, Luxembourg, they are under no obligation to perform or continue to perform such procedure, and such procedures may be discontinued at any time. None of the Issuer, the Trustee or any agent will have the responsibility for the performance by DTC, Euroclear, Clearstream, Luxembourg or their respective Direct or Indirect Participants of their respective obligations under the rules and procedures governing their operations. Pre-issue Trades Settlement It is expected that delivery of the Notes will be made against payment therefor on the Closing Date, which could be more than three business days following the date of pricing. Under Rule 15c6-1 under the Exchange Act, trades in the United States secondary market generally are required to settle within three business days (T+3), unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade the Notes in the United States on the date of pricing or the next succeeding business days until three days prior to the Closing Date will be required, by virtue of the fact the Notes initially will settle beyond T+3, to specify an alternate settlement cycle at the time of any such trade to prevent a failed settlement. Settlement procedures in other countries will vary. Purchasers of the Notes may be affected by such local settlement practices, and purchasers of the Notes between the relevant date of pricing and the Closing Date should consult their own advisers.

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CERTAIN ERISA CONSIDERATIONS ERISA imposes fiduciary standards and certain other requirements on employee benefit plans subject thereto (collectively, ERISA Plans), including collective investment funds, separate accounts, and other entities or accounts whose underlying assets are treated as assets of such plans pursuant to the U.S. Department of Labor plan assets regulation, 29 CFR Section 2510.3-101 (the Plan Assets Regulation) as modified by Section 3(42) of ERISA, and on those persons who are fiduciaries with respect to ERISA Plans. Under a look-through rule, if an ERISA Plan or a plan that is not subject to ERISA but that is subject to Section 4975 of the United States Internal Revenue Code of 1986, as amended (the Code) (collectively, Plans), invests in an equity interest of an entity and no other exception applies, the Plans assets include both the equity interest and an undivided interest in each of the entitys underlying assets. Unless another exception applies, this rule will only apply where benefit plan investors own 25 per cent. or more of the value of any class of equity interest in the entity. For purposes of this 25 per cent. determination, the value of equity interests held by persons (other than benefit plan investors) that have discretionary authority or control with respect to the assets of the entity or that provide investment advice for a fee (direct or indirect) with respect to such assets (or any affiliate of such a person) is disregarded. An equity interest does not include debt (as determined by applicable local law) which does not have substantial equity features. The term benefit plan investor is defined as (a) an employee benefit plan (as defined in Section 3(3) of ERISA) that is subject to Title I of ERISA, (b) a plan to which Section 4975 of the Code applies, or (c) any entity whose underlying assets include plan assets by reason of any such plans investment in the entity. Where the value of an equity interest in an entity relates solely to identified property of the entity, that property is treated as the sole property of a separate entity. Because the Notes do not represent an interest in any property of the Issuer other than the Loan and the Guarantees, they may be regarded for ERISA purposes as equity interests in a separate entity whose sole asset is the Loan and the Guarantees. Further, neither the Issuer nor Citibank, N.A., London Branch as trustee will be able to monitor the Noteholders possible status as benefit plan investors. Accordingly, the Notes (and interests in Notes) are not permitted to be acquired by or on behalf of any benefit plan investor. Governmental plans, certain church plans and certain non U.S. plans, while not subject to the prohibited transaction provisions of ERISA or the provisions of Section 4975 of the Code, may nevertheless be subject to federal, state, local, non U.S. or other laws or regulations that are substantially similar to the foregoing provisions of ERISA or the Code. Fiduciaries of such plans should consult with their counsel before purchasing any of the Notes or any interest therein. BY ITS PURCHASE AND HOLDING OF THE NOTES (INCLUDING ANY TRANSFEREE), THE PURCHASER THEREOF WILL BE DEEMED TO MAKE THE REPRESENTATIONS AND AGREEMENTS CONCERNING ITS STATUS AS A BENEFIT PLAN INVESTOR OR OTHER EMPLOYEE BENEFIT PLAN AS SET FORTH HEREIN UNDER TRANSFER RESTRICTIONS. The foregoing discussion should not be construed as legal advice. Any potential purchaser of Notes should consult its legal counsel with respect to issues arising under ERISA, Section 4975 of the Code and any Similar Laws and make its own independent decisions.

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GENERAL INFORMATION 1. Application has been made to list the Notes on the Irish Stock Exchange by the Issuer, through the Listing Agent, Arthur Cox Listing Services Limited (ACLSL). ACLSL is acting solely in its capacity as listing agent for the Issuer in relation to the Notes and is not itself seeking admission to the Official List or to trading on the Main Securities Market. It is expected that the listing of the Notes will be granted on or before 27 April 2012. Transactions will normally be effected for delivery on the third working day after the day of the transaction, subject only to the issue of the Global Notes. The Notes have been accepted for clearance through Euroclear and Clearstream, Luxembourg and DTC. The International Securities Identification Number (ISIN) of the Regulation S Global Note is XS0772835285 and the Common Code of the Regulation S Global Note is 077283528. The CUSIP number of the Rule 144A Global Note is 75406KAA5, the ISIN of the Rule 144A Global Note is US75406KAA51 and the Common Code of the Rule 144A Global Note is 077477799. The Company estimates the amount of expenses related to the admission of the Notes to trading on the Irish Stock Exchange to be approximately US$ 6,500. The making of the Loan was approved by a resolution of the Board of Directors of the Company on 10 April 2012, and the issue of the Notes and the making of the Loan were approved by a resolution of the Board of Directors of the Issuer on 19 April 2012. The Company and the Issuer will obtain all necessary consents, approvals and authorisations in Russia and Ireland, respectively, in connection with the Loan and the issue and performance of the obligations under the Notes. There has been no significant change in the financial or trading position of the Company or the Group since 31 December 2011 and no material adverse change in the prospects of the Company or the Group since 31 December 2011. There has been no significant change in the financial or trading position and no material adverse change in the prospects of the Issuer since 31 December 2010 which is material or significant. Neither the Company nor the Issuer has entered into any material contracts outside the ordinary course of its business which could result in the Company, the Issuer or the Group being under an obligation or entitlement that is material to the Companys ability to meet its obligations under the Loan Agreement or the Issuers ability to make payments under the Notes, as the case may be. Neither the Company, nor the Group, nor the Issuer has been involved in any governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Company or the Issuer is aware) during the 12 months preceding the date of this Prospectus which may have or have had in the recent past significant effects, in the context of the issue of the Notes, on the financial position or profitability of the Company, the Issuer or the Group. The audited consolidated financial statements of the Group as of and for the years ended 31 December 2011, 2010 and 2009 have been audited by Ernst & Young LLC (Ernst & Young), independent auditors, member of the Russian Chamber of Auditors (Auditorskaya Palata Rossii), of Sadovnicheskaya Naberezhnaya 77, Bldg. 1, Moscow 115035, Russian Federation. Their audit report was without qualification or reference to a matter of fundamental uncertainty but did contain an emphasis of matter paragraph stating We draw attention to Note 1 to the consolidated financial statements, which discloses a significant concentration of the Groups business with related parties. For so long as any Notes are outstanding, (i) copies in English of the audited consolidated financial statements of the Group for the financial years ended 31 December 2011, 2010 and 2009, together with the report of Ernst & Young contained therein and the latest interim consolidated unaudited financial information of the Company prepared according to IFRS and the latest annual accounts of the Issuer prepared in accordance with Irish GAAP may be obtained free of charge, and (ii) copies of the Companys and the Issuers constitutive documents, and copies of the Trust Deed in respect of the Notes (including the forms of the Global Notes and Definitive Notes), the Agency Agreement and the Loan Agreement will be available for inspection in physical form, at the registered office of the Issuer and the specified offices of the Trustee and the Principal Paying Agent in London during normal business hours.

2.

3. 4.

5.

6.

7.

8.

9.

10. The Company was registered with Administratsiya of Mezhdurechensk city, Kemerovo region as a closed joint-stock company on 19 December 1991 (registration number M425 035) and has been established for an indefinite period of time. Subsequently, on 21 March 2006, the Company was registered with the Federal Tax Service as an open joint-stock company. The Company was included in

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the Unified State Registry of Legal Entities on 21 March 2006 (principal state registration number 1024201389772). 11. There are no potential conflicts of interest between any duties of the members of the administrative, management or supervisory bodies of the Company towards the Company and their private interest and/or other duties. 12. The Trust Deed provides that the Noteholders shall together have the power, exercisable by Extraordinary Resolution, to remove the Trustee (or any successor trustee or additional trustees) provided that the removal of the Trustee or any other trustee shall not become effective unless there remains a trustee in office after such removal. Furthermore, the Trust Deed provides, inter alia, that the Trustee may act and/or rely on the opinion or advice of or a certificate or any information obtained from any lawyer, banker, valuer, surveyor, broker, auctioneer, accountant, auditor or other expert (whether or not addressed to the Trustee), notwithstanding that such opinion, advice, certificate or information contains a monetary or other limit on the liability of any of the abovementioned persons in respect thereof. 13. The loan to value ratio of the Notes is 100 per cent. 14. The Issuer does not intend to provide any post-issuance transaction information regarding the Notes or the underlying collateral. 15. The yield of the Notes on issuance is 100 per cent. 16. IMC has given and not withdrawn its written consent to the issue of the Prospectus with its name included within and to the inclusion of this report and references to this report in the Prospectus, in the form and context in which this report is included. IMC accepts responsibility for the information contained in this report as set out in this section of the Prospectus and those parts of the Prospectus which include references to this report and declares that IMC has taken all reasonable care to ensure that the information contained in this report is, to the best of its knowledge, in accordance with the facts and contains no omission likely to affect its report.

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APPENDIX AMINERAL EXPERTS REPORT

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IMC GROUP CONSULTING LIMITED

Icon Business Centres, Lake View Drive, Sherwood Park, Nottingham NG15 0DT United Kingdom Tel: +44 (0)1623 726166 Fax: +44 (0)1623 729359 Email: mining@imcgcl.com www.imcgcl.com

The Directors OAO Raspadskaya Moscow VTB Capital plc 14 Cornhill London EC3V 3ND United Kingdom Date 31st March 2012

Dear Sirs,

Competent Persons Report of the Mining Assets of OAO Raspadskaya, Russia Purpose of Report This report has been prepared by IMC Group Consulting Ltd ("IMC") for the possible inclusion in a prospectus (the "Prospectus") relating to an offering of loan participation notes by, but without recourse to, Raspadskaya Securities Limited for the sole purpose of financing a loan to OAO Raspadskaya (the "Company") which are expected to be admitted to the official list of the Irish Stock Exchange and trading on its regulated market. IMC was instructed by the Directors of the Company to prepare a Competent Persons Report (CPR) for the mining assets of the Company. This report, which summarises the findings of IMCs review, has been prepared in order to satisfy the requirements of a Competent Persons Report as set out in the European Commissions Regulation on Prospectuses No. 809/2004 in conjunction with the recommendations of the CESR updated with the ESMA guidelines of March 2011 and with the prospectus rules implementing Directive 2003/71/EC in the Republic of Ireland (the "Prospectus Rules") IMC has reviewed the practices and estimation methods undertaken by the Company for reporting reserves and resources in accordance with the Former Soviet Unions Classification and Estimation Methods for Reserves and Resources, approved in 1981, and the Methodological Recommendations for Classification of Hard Mineral Reserves and Prognostic Resources, updated in 2007, and submitted, as is mandatory, to the Ministry of Natural Resources of the Russian Federation. This procedure establishes the nature of evidence required to ensure compliance with the Classification. Within this is a Conditions for Estimation of Reserves and Resources unique to each deposit. IMC has reviewed the reserves and resources statements of the individual units compiled by the Company and has restated the reserves and resources in compliance with the recommendations of the CESR updated with the ESMA guidelines of March 2011 and in accordance with the criteria for internationally recognised reserve and resource categories of the Australasian Code for Reporting Mineral Resources and Ore Reserves published by the Joint Ore Reserves Committee, as amended (JORC) of the Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and the Minerals Council of Australia (the JORC Code). In this report, all reserves and resources estimates, initially prepared by the Company in accordance with the FSU Classifications, have been substantiated by evidence obtained from IMCs site visits and observation and are

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supported by details of drilling results, analyses and other evidence and takes account of all relevant information supplied by the management of the Company. In accordance with the Prospectus Directive in conjunction with the recommendations of the CESR updated with the ESMA guidelines of March 2011, only Proved and Probable Reserves have been valued. Other assets of the Company, which include resources, have not been included in the valuation. Capability and Independence This report was prepared by IMC, the signatory to this letter. The Project Director has 10 years experience of directing Competent Persons and Mineral Experts Reports. He is qualified under the provisions of the ESMA guidelines Section 133 (i) (a) and in particular both subsections (1) and (2) as a Competent Person under the requirements of the JORC Code. Details of the qualifications and experience of the consultants who carried out the work are in Appendix A to this report. IMC operates as an independent technical consultant providing resource evaluation, mining engineering and mine valuation services to clients. IMC has received, and will receive, professional fees for its preparation of this report. However, neither IMC nor any of its directors, staff or sub consultants who contributed to this report has any interest in: The Company or its subsidiaries; or the mining assets reviewed; or the outcome of any possible financing initiative.

Drafts of this report were provided to the Company, but only for the purpose of confirming both the accuracy of factual material and the reasonableness of assumptions relied upon in the report. Scope of Work / Materiality / Limitations and Exclusions IMC reviewed the assets in accordance with the scope of work set out in Appendix B to this report. IMC has independently assessed the mining assets of the Company by reviewing pertinent data, including resources, reserves, manpower requirements, environmental issues and the life-of-mine (LOM) plans relating to productivity, production, operating costs, capital expenditures and revenues. All opinions, findings and conclusions expressed in this report are those of IMC and its sub consultants. Inherent Mining Risk Open pit and underground mining is carried out in an environment where not all events are predictable. Whilst an effective management team can, firstly, identify the known risks, and secondly, take measures to manage and mitigate these risks, there is still the possibility for unexpected and unpredictable events to occur. It is therefore not totally possible to remove all risks or state with certainty that an event that may have a material impact on the operation of a mine, will not occur. Glossary of Terms Defined and technical terms used in this report are set out in Appendix D. IMC has given and not withdrawn its written consent to the issue of the Prospectus with its name included within and to the inclusion of this report and references to this report and the Prospectus. IMC accepts responsibility for the information contained in this report as set out in this section, in the form and context in which the report is included, of the Prospectus and those parts of the Prospectus which include references to this report and declares that IMC has taken all reasonable care to ensure that the information contained in this report is, to the best of its knowledge, in accordance with the facts and contains no omission likely to affect its import.

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Competent Persons Report on Mining Assets Russia

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TABLE OF CONTENTS 1
1.1 1.2 1.3 1.4 1.5 1.5.1 1.5.2 1.6 1.6.1 1.7 1.7.1 1.7.2 1.8 1.9 1.10 1.11 1.11.1 1.11.2 1.11.3 1.11.4 1.12 1.13 1.13.1 1.13.2 1.13.3 1.13.4 1.14 1.15 1.16 1.16.1 1.16.2 1.16.3 1.17

OVERVIEW .......................................................................................................................... 1
General ................................................................................................................................................. 1 Description of Assets............................................................................................................................ 1 Company Operational Interrelationship Structure .......................................................................... 1 Summary of Geological Characteristics ............................................................................................ 3 Reserves and Resources ...................................................................................................................... 3 GKZ Categorisation of Reserves and Resources under JORC .............................................................. 3 Reserves and Resources Statement ........................................................................................................ 5 Mines and Facilities ............................................................................................................................. 5 Historic Production Figures ................................................................................................................... 6 Management and Manpower .............................................................................................................. 6 Management .......................................................................................................................................... 6 Human Resources .................................................................................................................................. 7 Health and Safety ................................................................................................................................. 8 Regional Infrastructure ..................................................................................................................... 10 Projects and Prospects ...................................................................................................................... 10 Environmental Issues and Environmental Permitting ................................................................... 10 Legislation ........................................................................................................................................... 10 Status ................................................................................................................................................... 11 Environmental Management ................................................................................................................ 12 Rehabilitation....................................................................................................................................... 12 Statutory Authorisations and Licensing .......................................................................................... 12 Costs .................................................................................................................................................... 13 Raspadskaya Major Incident 2010 ....................................................................................................... 13 Operating Costs ................................................................................................................................... 14 Capital Costs ........................................................................................................................................ 14 Rehabilitation Expenditures ................................................................................................................. 15 Sales and Marketing .......................................................................................................................... 15 Financial Projections ......................................................................................................................... 16 Valuation of Reserves ........................................................................................................................ 19 Methodology and Assumptions ........................................................................................................... 19 Valuation Results ................................................................................................................................. 19 Sensitivity Analysis ............................................................................................................................. 20 Conclusions......................................................................................................................................... 20

2
2.1 2.2 2.2.1 2.2.2 2.3 2.3.1 2.3.2 2.3.3 2.3.4

RASPADSKAYA UNDERGROUND MINE .................................................................... 22

Maps and Plans .................................................................................................................................. 22 Geology ............................................................................................................................................... 22 Regional Geology ................................................................................................................................ 22 Raspadskaya Geology .......................................................................................................................... 22 Reserves and Resources .................................................................................................................... 25 Nature of Evidence .............................................................................................................................. 25 Modifying Factors ............................................................................................................................... 26 Verification .......................................................................................................................................... 26 Losses and Dilution ............................................................................................................................. 26

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Competent Persons Report on Mining Assets Russia 2.3.1 2.4 2.4.1 2.4.2 2.5 2.5.1 2.5.2 2.5.3 2.5.4 2.5.5 2.5.6 2.5.7 2.5.8 2.6 2.7 2.7.1 2.7.2 2.7.3 2.7.4 2.7.5 2.7.6

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Reserves and Resources Statement ...................................................................................................... 27 Mining ................................................................................................................................................. 28 Current Operations............................................................................................................................... 28 Future Plans ......................................................................................................................................... 29 Infrastructure..................................................................................................................................... 30 Access .................................................................................................................................................. 30 Electrical Power ................................................................................................................................... 30 Water Supply ....................................................................................................................................... 30 Drainage............................................................................................................................................... 30 Ventilation ........................................................................................................................................... 30 Compressors ........................................................................................................................................ 30 Mine Workshops.................................................................................................................................. 31 Explosives ............................................................................................................................................ 31 Projects and Prospects ...................................................................................................................... 31 Environmental Issues ........................................................................................................................ 31 Environmental and Social Status ......................................................................................................... 31 Permitting and Compliance ................................................................................................................. 31 Potential Impacts and Control Measures ............................................................................................. 32 Environmental Management ................................................................................................................ 33 Rehabilitation....................................................................................................................................... 33 Summary of Potential Risks and Liabilities ......................................................................................... 33

3
3.1 3.2 3.2.1 3.2.2 3.3 3.3.1 3.3.2 3.3.3 3.3.4 3.3.5 3.4 3.4.1 3.4.2 3.5 3.5.1 3.5.2 3.5.3 3.5.4 3.5.5 3.5.6 3.5.7 3.5.8 3.6 3.7 3.7.1 3.7.2 3.7.3 3.7.4 3.7.5

MEZHDURECHENSKAYA UGOLNAYA KOMPANIA (MUK) 96 UNDERGROUND MINE ................................................................................................... 34

Maps and Plans .................................................................................................................................. 34 Geology ............................................................................................................................................... 34 Regional Geology ................................................................................................................................ 34 MUK 96 Geology ................................................................................................................................ 34 Reserves and Resources .................................................................................................................... 35 Nature of Evidence .............................................................................................................................. 35 Modifying Factors ............................................................................................................................... 36 Verification .......................................................................................................................................... 36 Losses and Dilution ............................................................................................................................. 37 Reserves and Resources Statement ...................................................................................................... 37 Mining ................................................................................................................................................. 38 Current Operations............................................................................................................................... 38 Future Plans ......................................................................................................................................... 39 Infrastructure..................................................................................................................................... 39 Access .................................................................................................................................................. 39 Electrical Power ................................................................................................................................... 39 Water Supply ....................................................................................................................................... 39 Drainage............................................................................................................................................... 40 Ventilation ........................................................................................................................................... 40 Compressors ........................................................................................................................................ 40 Mine Workshops.................................................................................................................................. 40 Explosives ............................................................................................................................................ 40 Projects and Prospects ...................................................................................................................... 40 Environmental Issues ........................................................................................................................ 40 Environmental and Social Status ......................................................................................................... 40 Permitting and Compliance ................................................................................................................. 40 Potential Impacts and Control Measures ............................................................................................. 41 Environmental Management ................................................................................................................ 41 Rehabilitation....................................................................................................................................... 42

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Competent Persons Report on Mining Assets Russia 3.7.6

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Summary of Potential Risks and Liabilities ......................................................................................... 42

4
4.1 4.2 4.2.1 4.2.2 4.3 4.3.1 4.3.2 4.3.3 4.3.4 4.3.5 4.4 4.4.1 4.4.2 4.5 4.5.1 4.5.2 4.5.3 4.5.4 4.5.5 4.5.6

RASPADSKAYA KOKSOVAYA UNDERGROUND MINE ......................................... 43

Maps and Plans .................................................................................................................................. 43 Geology ............................................................................................................................................... 43 Regional Geology ................................................................................................................................ 43 Raspadskaya Koksovaya Geology ....................................................................................................... 43 Reserves and Resources .................................................................................................................... 45 Nature of Evidence .............................................................................................................................. 45 Modifying Factors ............................................................................................................................... 45 Verification .......................................................................................................................................... 46 Losses and Dilution ............................................................................................................................. 46 Reserves and Resources Statement ...................................................................................................... 46 Mining ................................................................................................................................................. 47 Mine Field No. 1 .................................................................................................................................. 47 Mine Field No. 2 .................................................................................................................................. 49 Environmental Issues ........................................................................................................................ 50 Environmental and Social Status ......................................................................................................... 50 Permitting and Compliance ................................................................................................................. 50 Potential Impacts and Control Measures ............................................................................................. 51 Environmental Management ................................................................................................................ 52 Rehabilitation....................................................................................................................................... 52 Summary of Potential Risks and Liabilities ......................................................................................... 52

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5.1 5.2 5.2.1 5.2.2 5.3 5.3.1 5.3.2 5.3.3 5.3.4 5.3.5 5.4 5.4.1 5.4.2 5.5 5.5.1 5.5.2 5.5.3 5.5.4 5.5.5 5.5.6 5.6 5.6.1 5.7 5.7.1 5.7.2 5.7.3 5.7.4 5.7.5

RASPADSKY OPEN PIT ................................................................................................... 53

Maps and Plans .................................................................................................................................. 53 Geology ............................................................................................................................................... 53 Regional Geology ................................................................................................................................ 53 Raspadsky Geology ............................................................................................................................. 53 Reserves and Resources .................................................................................................................... 55 Nature of Evidence .............................................................................................................................. 55 Modifying Factors ............................................................................................................................... 55 Verification .......................................................................................................................................... 55 Losses and Dilution ............................................................................................................................. 56 Reserves and Resources Statement ...................................................................................................... 56 Mining ................................................................................................................................................. 57 Current Operations............................................................................................................................... 57 Future Plans ......................................................................................................................................... 58 Infrastructure..................................................................................................................................... 58 Access .................................................................................................................................................. 58 Electrical Power ................................................................................................................................... 58 Water Supply ....................................................................................................................................... 58 Drainage............................................................................................................................................... 58 Mine Workshops.................................................................................................................................. 59 Explosives ............................................................................................................................................ 59 Projects and Prospects ...................................................................................................................... 59 Coal Projects ........................................................................................................................................ 59 Environmental Issues ........................................................................................................................ 59 Environmental and Social Status ......................................................................................................... 59 Permitting and Compliance ................................................................................................................. 59 Potential Impacts and Control Measures ............................................................................................. 60 Environmental Management ................................................................................................................ 60 Rehabilitation....................................................................................................................................... 61

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Competent Persons Report on Mining Assets Russia 5.7.6

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Summary of Potential Risks and Liabilities ......................................................................................... 61

6
6.1 6.2 6.3 6.4 6.5 6.6 6.6.1 6.6.2 6.6.3 6.6.4 6.6.5 6.7 6.7.1 6.7.2 6.7.3 6.7.4 6.7.5 6.7.6

RASPADSKAYA COAL PREPARATION PLANT ........................................................ 62

General ............................................................................................................................................... 62 Plant Description ............................................................................................................................... 62 Plant Performance ............................................................................................................................. 62 Plant Modifications............................................................................................................................ 63 Future Plans ....................................................................................................................................... 63 Infrastructure..................................................................................................................................... 63 Access .................................................................................................................................................. 63 Electrical Power ................................................................................................................................... 64 Water Supply ....................................................................................................................................... 64 Plant Workshops .................................................................................................................................. 64 Laboratory ........................................................................................................................................... 64 Environmental Issues ........................................................................................................................ 64 Environmental and Social Status ......................................................................................................... 64 Permitting and Compliance ................................................................................................................. 64 Potential Impacts and Control Measures ............................................................................................. 64 Environmental Management ................................................................................................................ 65 Rehabilitation....................................................................................................................................... 65 Summary of Potential Risks and Liabilities ......................................................................................... 65

7
7.1 7.2 7.2.1 7.2.2 7.2.3 7.3

MARKETING...................................................................................................................... 66
Russian Market .................................................................................................................................. 66 Export Market ................................................................................................................................... 66 Ukraine ................................................................................................................................................ 67 China.................................................................................................................................................... 67 Japan .................................................................................................................................................... 67 Conclusion .......................................................................................................................................... 67

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SPECIAL FACTORS .......................................................................................................... 68 CONCLUSIONS .................................................................................................................. 69 LIST OF TABLES

Table 1-1 Table 1-2 Table 1-3 Table 1-4 Table 1-5 Table 1-6 Table 1-7 Table 1-8 Table 1-9 Table 1-10 Table 1-11 Table 1-12 Table 1-13

List of Assets ............................................................................................................................... 1 Classification of Reserves / Resources and Relationship of FSU Categories with International Definitions ................................................................................................................................... 4 JORC Equivalent Coal Reserves and Resources as at 31st December 2011 ................................ 5 Historic ROM Coal Production ................................................................................................... 6 Historic Saleable Coal Production ............................................................................................... 6 Company Workforce Average for 2011 and Actual as at 31 st December 2011 ........................... 7 Health and Safety Statistics ......................................................................................................... 9 Statutory Authorisations Principal Sub-Soil Operations ........................................................ 12 Additional Costs Resulting from the 2010 Major Incident 2010 to 2013 .................................. 13 Production Cash Cost per Tonne of Coal Production ................................................................ 14 Capital Investment Distribution................................................................................................. 15 Rehabilitation Expenditures by Site and Discounted Expenditures ........................................... 15 Average Concentrate Selling Prices 2009 to 2011 .................................................................... 16

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Competent Persons Report on Mining Assets Russia Table 1-14 Table 1-15 Table 1-16 Table 1-17 Table 1-18 Table 2-1 Table 2-2 Table 2-3 Table 2-4 Table 2-5 Table 3-1 Table 3-2 Table 3-3 Table 3-4 Table 3-5 Table 4-1 Table 4-2 Table 4-3 Table 4-4 Table 4-5 Table 5-1 Table 5-2 Table 5-3 Table 5-4 Table 5-5 Table 6-1 Table 6-2 Table 6-3 Table 6-4 Table 7-1

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Summary of Physical and Financial Projections for OAO Raspadskaya, Years 2012 to 2021 . 17 Summary of Physical and Financial Projections for OAO Raspadskaya, Years 2022 to 2031 . 18 Base Case Valuation of Reserves NPV Based on Post Tax Results ........................................ 19 Summary of Valuation of Reserves NPV Based on Post Tax Results ..................................... 20 Sensitivity Analysis of Reserve Valuation NPV Based on Post Tax Results ......................... 20 Coal Quality .............................................................................................................................. 24 Raspadskaya Losses and Dilution ............................................................................................. 26 Raspadskaya Resources and Reserves as at 31st December 2011 .............................................. 27 Raspadskaya Mine Production Equipment ................................................................................ 28 Raspadskaya Environmental Permits ........................................................................................ 31 Coal Quality .............................................................................................................................. 35 MUK 96 Losses and Dilution .................................................................................................... 37 MUK 96 Resources and Reserves as at 31st December 2011 .................................................... 38 MUK 96 Production Equipment ................................................................................................ 38 MUK 96 Environmental Permits ............................................................................................... 41 Coal Quality .............................................................................................................................. 44 Raspadskaya Koksovaya Losses and Dilution........................................................................... 46 Raspadskaya Koksovaya Resources and Reserves as at 31st December 2011 ........................... 47 Field No. 2 Development Equipment ........................................................................................ 50 Raspadskaya Koksovaya Environmental Permits ...................................................................... 51 Coal Quality .............................................................................................................................. 54 Raspadsky Losses and Dilution ................................................................................................. 56 Raspadsky Resources and Reserves as at 31st December 2011 ................................................. 57 Raspadsky Mobile Plant ............................................................................................................ 57 Raspadsky Open Pit Environmental Permits ............................................................................. 59 Historical ROM Coal Characteristics ........................................................................................ 62 Historic Plant Performance ........................................................................................................ 63 Historic Plant Operational Parameters....................................................................................... 63 Raspadskaya CPP Environmental Permits ................................................................................ 64 Customer Sales in 2010 ............................................................................................................. 66

TABLE OF FIGURES
Figure 1-1 Company Structure ...................................................................................................................... 2

APPENDICES
Appendix A Appendix B Appendix C Appendix D Qualifications of the Consultants Scope of Work, Materiality & Limitations Maps and Plans Glossary of Terms

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1
1.1

OVERVIEW
General

OAO Raspadskaya is operationally based in Mezhdurechensk but reports to a headquarters in Moscow. All of operational units are within a single complex 20 km from Mezhdurechensk in the Russian Federation. Currently the Company has three bituminous coal underground mines and one open pit in production. The production mines provide run of mine (ROM) coal for a preparation plant, which produce various thermal and coking washed products for the domestic and international markets. 1.2 Description of Assets

IMC reviewed the assets listed in Table 1-1 below all of which are wholly owned by OAO Raspadskaya and located as shown in Plate 1, Appendix C. Table 1-1 Asset Mining Raspadskaya MUK 96 Raspadskaya Koksovaya Raspadsky Processing Raspadskaya Operating Coal Preparation Plant Metallurgical Coal 2005 Operating Operating Operating Operating Underground Mine Underground Mine Underground Mine Open Pit Coal Coal Coal Coal 1973 1996 2003 2004 List of Assets Status Type Product / Output Date of Commencement of Operation

1.3

Company Operational Interrelationship Structure

Figure 1-1 below shows a simplified OAO Raspadskaya Company structure. The notes shown on the structure chart are explained as follows: (1) All companies are registered in Russia and are taxpayers in Kemerovskaya Oblast; (2) Mining of ROM semi-hard coking coal; (3) Mining of ROM hard coking coal. ZAO Koksovaya, a hard coking coal (HCC) mining company was acquired in April 2010. In February 2011, ZAO Koksovaya was reorganized by the incorporation to ZAO Raspadskaya-Koksovaya; (4) ROM coal preparation; (5) Sale of coal products; (6) General management; (7) Transportation of coal products; (8) Mine construction; (9) Sale of power and heat; (10) Wholesale fuel business; (11) Roof bolting, metal grid manufacture

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Figure 1-1

Company Structure

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1.4

Summary of Geological Characteristics

Coal seams of the Raspadskaya area are located within the gently dipping Permian sediments of the Ilyinskaya and Erunakovskaya sub-series of the Kolchuginskaya series. This is a part of a very extensive coal field which lies in the southwest part of the Tom-Usinsk geological-economic area of the Kuznetsk Basin (Kuzbass). The licensed area is represented by Erunakovskaya sub-series of Kolchuginskaya series of Upper Permian age and Conglomerate series of the Jurassic and overlaying Quaternary alluvial sediments. 1.5 Reserves and Resources

1.5.1 GKZ Categorisation of Reserves and Resources under JORC The Russian Federation uses, by law, the classification system and estimation methods for reserves and resources established by the Former Soviet Union and last revised by the Ministry of Natural Resources in 2007. In practice, this means that the statements of reserves and resources developed by Raspadskaya and the mining plans to which they relate must be submitted for approval to the corresponding committees of the Ministry of Natural Resources. Adherence to the standardised national system of reserves and resources estimation is mandatory. As part of the exploitation licence for each mineral deposit, a set of Conditions for Estimation of Reserves were prepared by the corresponding national design institute and were approved by a State supervisory authority. The conditions apply a well-defined process of classifying the specific deposit into one of five major deposit categories, subject to which, the principles for exploration and classification of reserves and resources have been established. Reserves and resources are classified into five main classes and designated by the symbols A, B, C1, C2 and P1 and P2, based on the degree of reliability of exploration data. The P categories of resources are prognosticated and are considered equivalent to inferred resources. The Conditions for Estimation of Reserves for each deposit specify the method of computation of reserve blocks, the minimum thickness for exploitation of the orebody and cut-off grades, plus special considerations which may apply where the conditions for mineral extraction are exceptional or present difficulties. With reference to these conditions, the reserves stated for each deposit are further categorised as balance reserves, which means they meet the pre-determined criteria for economically justifiable extraction, or are out-ofbalance resources considered to be uneconomic to exploit. Mineral deposits in Russia are classified in terms of geological complexity according to the size, continuity and structural disposition of the deposit. With respect to the deposits in exploitation or planned for future operation by Raspadskaya, three groups are of relevance: Group 1 deposits are large deposits, simple in form with uniform distribution of minerals. The highest confidence classes of reserves, A + B reserves, can be established on the basis of drillholes, trenches and trial pits. Group 2 deposits are large deposits with variable and sometimes complicated forms and an uneven distribution of minerals. Only B and C1 reserves may be defined based on exploration data, such as drillholes, trenches and pits, and higher confidence reserves classes can be established only by a combination of closely spaced drillholes and active exploitation. Group 3 deposits are smaller-sized deposits with uneven distribution of minerals (examples include vein-hosted or pegmatite deposits, skarns and dykes). Only C1 and C2 reserves may be defined based on exploration data and higher confidence reserves classes can be established only on the evidence of operational experience. The classification of reserves and resources in higher confidence classes based on progressively higher density of observation points is broadly in line with Western resource categories. There is common consensus, supported by the experience of the Consultants, that the spacing of deposit definition points prescribed in the Soviet system is generally more exacting than commonly applies in Western exploration practice. The criteria for the classes of reserves and resources used in the Russian system may be summarised: Category A: the deposit is known in detail; boundaries of the deposit have been outlined by trenching, drilling, or underground workings. The quality and properties of the ore are known in sufficient detail to ensure the reliability of the projected exploitation. Category B: the deposit has been explored but is only known in fair detail; boundaries of the deposit have been outlined by trenching, drilling, or underground workings. The quality and properties of the ore are known in sufficient detail to ensure the basic reliability of the projected exploitation. Category C1: the deposit has been estimated by a sparse grid of trenches, drillholes or underground workings. The quality and properties of the deposit are known tentatively by analogy with known

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deposits of the same type and the general conditions for exploitation are known tentatively. This category includes resources peripheral to the boundaries of the A and B category and also reserves allocated in complex deposits in which the ore distribution cannot be reliably determined even by a very dense grid. Category C2: deposit deposition has been extrapolated from limited data. This category includes resources adjoining areas designated as A, B, and C1 in the same deposit. After inspection of the Conditions for Estimation of Reserves which apply to the specific deposits under exploitation and exploration by Raspadskaya, and the corresponding density of exploration data required for the classification of resources, the Consultants are of the view that classification of resources and resource blocks in the categories A, B, C1 and C2 is a reliable guide to the confidence for volumetric definition of resources inplace. The Conditions for Estimation of Reserves define cut-off grades and the density values employed for ore in-place. These appear consistent with the current commercial performance of the operations and a relevant guide to the commercial exploitability of these resources. The computation method for reserves and resources is also specified in the Conditions for Estimation of Reserves for each deposit. This follows methods defined under the Soviet administration, for which the detail of the method depends on the geometry of the deposit. In all cases the computation method is designed to be performed manually. In recent years there has been increasing use of computers for developing graphical materials and also for modelling of deposits. Estimations generated by computer models are increasingly being generated in parallel with the official approved methodology. The current management of resource extraction planning comprises a long-term strategic plan which establishes targets for ore production and ore grade, with allowance for standard dilution and losses, which are allocated on an annual basis to each production unit. It is the responsibility of each operating unit to prepare an annual exploitation plan to meet the strategic production target, within cost budget limits set by the central organization of the Company. Reserve depletion is calculated on an annual basis, against the nominal reserves base, and reconciliation establishes reserves which may be required to be written off and restates the reserve base. It is the opinion of IMC that this system represents a very traditional system of resource management as demanded by national legislation. The system is nevertheless a robust and reliable reflection of the utilisation and depletion of reserves and resources. The Raspadskaya mineral deposit volumes are estimated by the determination of the areas at specific levels and the multiplication of this area by the average thickness estimated from sections through the applicable area. The estimate of resource tonnage is obtained by multiplication of the estimated volume by the assumed specific gravity (SG) defined in the Conditions for Estimation of Reserves for each deposit for specific ore type and grade. The Former Soviet Union system includes defined standards and procedures for exploration drilling and sampling as well as standards during subsequent development and during production. Drilling and channel sampling is carried out during development and samples analysed and included into plans. Similar standards and procedures are also defined for the production phase and channel samples from working areas, grab samples at loading points and from ore trucks are taken (usually at a weighbridge in the latter case). These are all analysed and, with check samples and blanks, sent for analysis. The results of the ore analysis are included in the plans. IMC has reviewed the reserves and resources statements of the individual units and has reconciled and restated the reserves and resources in accordance with JORC as in Table 1-2 below. The alignments use the new Guidelines on Alignment of Russian minerals reporting standards and the CRIRSCO Template published jointly in 2010 by the Russian Federal Government Agency State Commission on Mineral Reserves and the Committee for Mineral Reserves International Reporting Standards (CRIRSCO) as a guide but actual classifications are the judgement of the IMC geologist. Table 1-2 Classification of Reserves / Resources and Relationship of FSU Categories with International Definitions FSU Reserve Category A B Reserve blocks identified for extraction within Plans Proved reserve Proved reserve Resources not allocated to detailed plans (may be scheduled in long-term strategic plans without cost support) Measured resource Measured resource

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C1 C2 P1 P2

Proved reserve Probable reserve -

Measured resource Indicated resource Inferred resource -

1.5.2 Reserves and Resources Statement All reserves quoted in tables in this report are discounted for ore losses and dilution. Resources are not discounted for losses and dilution and are inclusive of reserves. All figures in reserves and resources are in thousands metric tonnes and are as at 31st December 2011. Table 1-3 below show the anthracite reserves and resources for OAO Raspadskaya as at 31st December 2011. Table 1-3 JORC Equivalent Coal Reserves and Resources as at 31st December 2011 Mineral Resources Mine Category Raspadskaya LOM 93 Years MUK 96 LOM 45 Years Raspadskaya Koksovaya LOM 43 Years Measured Indicated Total Measured Indicated Total Measured Indicated Total Raspadsky LOM 26 Years Raspadskaya Total Measured Indicated Total Measured Indicated Total
Note Resources include undiscounted reserves. Reserves include adjustments for loss and dilution modifying factors.

Ore Reserves Category Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total '000t 185,147 676,440 861,587 60,620 135,976 196,596 54,660 81,529 136,189 82,513 37,216 119,729 382,940 931,161 1,314,101

'000t 1,137,255 0 1,137,255 302,363 0 302,363 232,507 0 232,507 136,945 0 136,945 1,809,070 0 1,809,070

In addition to the classified reserves and resources shown above there are significant inferred resources at two of the mines, totalling 262 Mt, which could be upgraded to classified resources with appropriate exploration and supporting economic mine plans. In accordance with the ESMA guidelines these inferred resources are not included in the valuation so are not included in summary table above but may be seen in the resources statements for each mine in the main body of the report. 1.6 Mines and Facilities

Currently the Company has three bituminous coal underground mines and one open pit in production. The production mines provide run of mine (ROM) coal for a preparation plant, which produce various thermal and coking washed products for the domestic and international markets.

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1.6.1 Historic Production Figures Historic ROM production figures are given below in Table 1-4. IMC has reviewed the forecast production levels and found them to be reasonable and attainable based on these historic results and an understanding of the planned expansion strategy of the Company. Table 1-4 Historic ROM Coal Production Coal Production Open Pit Year 2009 Raspadsky 2010 2011 Mine Year 2009 Raspadskaya 2010 2011 2009 MUK 96 2010 2011 2009 Raspadskaya Koksovaya 2010 2011 2009 Total Underground 2010 2011 2009 Total Raspadskaya 2010 2011 Table 1-5 CPP Historic Saleable Coal Production Year 2009 Raspadskaya 2010 2011 1.7 ROM '000t 10,642 6,818 5,140 Saleable '000t 7,810 5,246 3,765 Ash% 8.4 8.3 8.8 Moisture % 8.7 8.4 8.5 Volatiles % 36.5 36.5 36.4 Plasticity (mm) 19.1 18.2 17.5 Sulphur % 0.64 0.69 0.73 Yield % 73.4 76.9 73.2 '000t 1,899 1,721 2,743 '000t 6,856 3,190 1,253 1,783 1,830 1,309 21 418 945 8,660 5,439 3,508 10,560 7,160 6,251 Overburden Stripping '000m3 Ratio 7.22 13,715 16,883 24,144 m 23,144 7,380 2,899 8,287 7,614 5,055 1,058 3,947 5,540 32,489 18,941 13,494
9.81

8.80

Coal Production

Development

Management and Manpower

1.7.1 Management IMCs personnel were in regular contact and held numerous discussions with the Company management at various levels. IMC is satisfied that the Company management is capable of implementing the proposed production plans based on this contact and on direct observations of operational management. The Company operates its management and financial programmes in accordance with International Financial Reporting Standards (IFRS) as part of a standardised electronic reporting system for health and safety, production and

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financial performance. The Company is focused in one location in the Russian Federation which reports to the head office in Mezhdurechensk. 1.7.2 Human Resources Raspadskaya Coal Company is one of the Russias largest companies producing coking coal where Raspadskaya mine is the largest coal mine in Russia. As of 31st December 2011, the total workforce of facilities managed by Raspadskaya Coal Company was 8,361 people. Apart from the main mining and processing facilities, the Company also includes Tomusinskaya Loading and Transportation Department (436 people), Olzherasskoye Mine Development Department engaged in drivage of main roadways (665 people) and a number of auxiliary companies. The workforce of the mining facilities is shown in Table 1-6 below. Table 1-6 Company Workforce Average for 2011 and Actual as at 31st December 2011 Enterprise Raspadskaya Mine MUK 96 Olzherasskoye Mine Development Department Raspadsky Open Pit Raspadskaya Koksovaya Mine Koksovaya Raspadskaya CPP Tomusinskaya Loading and Transportation Department Montazhnik Raspadsky Raspadskaya Logistic Company Raspadsky Ugol Raspadskaya Coal Company Raspadskaya Energo Total 6,380 1,743 56 8,178 Production Personnel 2,818 754 552 540 829 47 376 294 141 11 5 12 Managers, Specialists and Administration 612 169 155 101 283 13 57 130 33 8 49 135 NonAverage Production Total 2011 Personnel 47 1 1 0 6 1 0 0 0 0 0 0 3,477 925 708 641 1,118 60 433 423 174 19 55 147 Total as at 31st Dec 2011 3,567 938 665 668 1,212 0 440 436 197 23 59 155 1 8,361

To maintain and develop the human resources potential of the enterprises managed by the Company it cooperates with the following mining training institutions: Higher Education Institutions KuzGTU (Kemerovo and branch in Mezhdurechensk); SibGIU, Krasnoyarsk State University of Non-Ferrous Metals and Gold; Irkutsk State Technical University; Ural State Mining University; St. Petersburg State Mining Institute; and

Moscow State Mining University. Technical Schools and Colleges Mezhdurechensk Mining and Construction College; Chernogorsk Mining College;

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Kemerovo Mining Technical College; Anzhero-Sudzhensk Mining Technical College, Osinniki Mining College; Prokopyevsk Mining Technical College; and

Tom-Usinsky Mining, Power and Transportation College. Vocational Schools Vocational school No. 62 (Mezhdurechensk); and Vocational school No. 42 (Anzhero-Sudzhensk). The main sources of human resources recruited by the Company are the graduates of education institutions. The Company implements a policy of attracting students for practical training in the Companys facilities, followed by recruitment. Up to 800 people receive practical training each year and in 2011, 546 people were trained. Over recent years the Company has tended to prefer graduates of higher education institutions of the Kemerovo oblast and neighbouring regions. At present, the level of training of graduates from Kemerovo oblast education institutions, in professions which are in demand at the Companys enterprises, meets the requirements set for mining specialists required for modern mining facilities. Professional development of employees is arranged in the following training institutions: PROFI Agency, Kemerovo; NOU Novokuznetsk Economic Studies Training Centre; Infoling training centre, Krasnoyarsk; NTC-NIIOGR, Chelyabinsk; Progress, St. Petersburg; Siberian Infocentre; Novosibirsk; Softline, Novosibirsk; Regional Centre of Economics and Business, Mezhdurechensk; and

Kemerovo Oblast Branch of Novosibirsk Training Centre of Technical and Economic Studies, Mezhdurechensk. Training of engineers and technicians in health and safety is delivered in the following training institutions: Kemerovo RIPK, Mezhdurechensk; Training Courses Centre, Mezhdurechensk; Rostechnadzor, Moscow; GOU VPO KuzGTU, Kemerovo training and certification of underground engineers and technicians; Regional Personnel Training Centre Evraz-Siberia, Mezhdurechensk; Training Centre of Yuzhny Kuzbass company; and

Training Centre of Raspadskaya Mine. In 2011, training was provided to 4,381 people (training of new workers, training in the second (related) professions, professional development of workers and the re-training of workers). It is planned to train 4,848 people in 2012. The Companys enterprises are characterised by similar trends which are typical for the Russian coal industry in general. The most serious shortage is in development workers. It can be noted that the Company is one of the highly acknowledged and respected Kuzbass coal companies. This is a great advantage for the Company in its drive to recruit workers. 1.8 Health and Safety

The Company adheres to the Health and Safety Laws of Russia. Activity based risk analysis and work procedures are now required as part of the 2009 Russian regulations which the Company is implementing. The Company has a safety policy supported by regulations and standing instructions applying to all operations and job categories and which are updated every five years under the Health and Safety Laws of Russia. The Company has a health and safety programme for operational and technical issues and programmes are updated and re-issued at the end of each year. There is a Company representative coordinating safety inspection and investigation teams compiling shift reports on all aspects of safety. Government safety inspections are carried

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out and reports made to the Company. Internal reports are reviewed and actioned at regular production meetings. The Lost Time Injury Frequency Rate is one of the parameters used to monitor safety performance in industry and is usually measured per 100,000 manshifts or one million manhours. The Company use a rate that is not comparable to other figures based per 1,000 employees for its Russian operations. The international standard for reporting of accidents is the Lost Time Incident Frequency Rate (LTIFR) is per million man hours but the Company standard is per 1,000 employees on books. An Incident becomes registered as an LTI where any man loses a single shift which, is in line with internationally accepted procedures for LTI classification. Company calculation method: LTIFR = LTI x 1,000 Total Number of Men on Books

International calculation method LTIFR = LTI x 1,000,000

Total Number of Man hours Worked Similarly, the international calculation method for Lost Time Incident Severity Rate (LTISR) is also based on million manhours worked. LTISR = Days Lost x 1,000,000 Total Number of Man hours Worked IMC has converted the Company figures to the international standard per million man-hours worked for an easier industry comparison, shown below in Table 1-7 below. Table 1-7 Health and Safety Statistics 2009 Manpower Total Accidents Fatalities LTI Frequency Rate LTI Severity Rate 7,239 66 3 5.1 384 2010 7,881 270 73 19.1 1022 2011 7,975 68 1 3.0 392

The LTIFR average for similar international mining operations is 6.26 per million man-hours worked. The Company has a trend of being better than the international average in the years before and after the explosion in 2010. The LTISR has also been better than other similar international mining operations in the last years before and after the explosion. The safety record of Raspadskaya has been dominated by the double explosion disaster which occurred in May 2010 when 91 people died including 73 Company personnel, 7 Rescue team with 11 people still not recovered. The mine is still recovering from the incident which destroyed the top of No. 4 downcast shaft. At the time the mine was sealed into sections and flooded to control the underground fires. The underground workings have progressively been recovered working under a Post Disaster Recovery of OAO Raspadskaya Mine Project approved by the national government. As well as the rehabilitation of the mine there have been a number of safety initiatives introduced. Mine Layout Barrier pillars are now left between longwall panels. Gateroad developments are driven in pairs.

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Ventilation The use of bleeder roads behind the face has been limited and the additional gateroad is now used as a face return. Methane Drainage Effective methane drainage has been introduced by drilling holes into the de-stressed waste areas behind the longwall face from the twin gate road. Gas Control A comprehensive environmental monitoring system has been commissioned which monitors to the surface control room which keeps historical computerised records. Personnel Location A Flex-Comm system has been installed which monitors the location of all personnel underground back to the surface control room. This has an integrated methane sensor and alarm on each individual and an emergency warning alarm can be sent by the control room to each individual. Stone Dust Stone dust barrier spacing have now been decreased and are installed every 80 to 100 m in all roadways. Dust Suppression Back pick flushing is now fitted to all cutting drums and development machines to reduce dust make and prevent incentive sparking. Rescuers All self-rescuers have now been replaced. All rescue team breathing apparatus has now been replaced.

IMC has had extensive discussions with senior managers and Directors of the Company about the explosion, its aftermath and the progressive rehabilitation programme and considers that a very responsible and detailed approach has been adopted. All initiatives and suggestions have been considered utilising all the national and international expertise available. 1.9 Regional Infrastructure

The operational centre of OAO Raspadskaya is situated in Mezhdurechensk 100 km from the major town of Novokuznetsk which serviced by well developed road, rail and air transport networks. Communications are mainly good with land and mobile telephone links. Water is supplied primarily by water abstraction from rivers but supplemented by boreholes at each one of the operational sites. Power is supplied to the all sites via the local national grid distribution systems which is soon to be replaced by a dedicated 40 MVA supply direct from a hydro-electric power station. 1.10 Projects and Prospects

The Company intends to expand production at its operational and developing underground and open pit mines with plans documented in the individual mine sections. The overall objective is increase production to 18 Mtpa ROM with saleable concentrate of 12 Mtpa. 1.11 Environmental Issues and Environmental Permitting

1.11.1 Legislation The primary legislation governing the exploitation of mineral deposits is the Federal Law on Subsoil, which establishes the basis for the issuing exploration and mining licences and defines the concept of the rational use of resources. Environmental regulation applied through all phases of exploration, mining and processing is established in the Federal Law on Environmental Protection 2002 and administered by the Ministry of Natural Resources (MNR). Regulatory procedures, quality standards and requirements for land restoration are provided in Primary articles of legislation, the most relevant of which include Federal Laws and their amendments on: Protection of the Air, 1999. Waste Production and Consumption, 1998.

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The Water Code, 2006. The Land Code, 2001. The Forest Code, 2006. Production and Consumption of Waste, 1998. Protection of the Sanitary, Epidemiological and Health of Citizens, 1999. Licensing of Activities.

To IMCs knowledge there are no forthcoming changes or additions to the existing legislation likely to have material effect on the current and proposed operations. Numerous Decrees and subsidiary regulations support the primary legislation. Of particular relevance is the Federal Decision concerning the norms for payments for use of the environment in terms of emissions to air from stationary and moveable sources, discharge of polluting matter into water objects and the production and placement of dangerous waste materials. A key element of the project initiation phase is the OVOS process as defined in the Regulation on Environmental Impact Assessment of Planned Economic and Other Types of Activity, 2000; equivalent to the international Environmental and Social Impact Assessment (ESIA) procedure. The draft OVOS is subjected to peer review before implementation according to the Federal Law on Ecological Expertise, 1995. Licences provide a general right to utilise natural resources, including emission or discharge of controlled substances whereas permits give detailed conditions relating to the emission or discharge. The terms and conditions attached to each mining licence generally specify the need to conform to statutory procedures, to ensure adequate environmental protection and safety measures and for rehabilitation of the site after cessation of mining. Breach of these conditions may in theory lead to suspension of the license or difficulty in renewal. The overall regulation of environmental issues at regional level, including approval of permits and licenses, is under the authority of Rostekhnadzor, the Federal Department for Ecological, Technical and Atomic Supervision. Planned environmental management and monitoring activities must be submitted annually by the mines and approved by Roztechnadzor. Permissions to discharge polluting substances to the atmosphere and water objects, the generation and placement of waste materials are issued on the basis of Technical Projects prepared by specialist companies which establish the normative discharge levels of a wide range of substances for a particular operation. Any substantial modification to the operational design must be supported by an amended Project, which in any case must be revised every 5 years. Monitoring is undertaken to assess compliance with the permit conditions and environmental taxes are paid each quarter according to the actual emissions, discharges and waste and their hazard classification. Exceeding the permit conditions does not necessarily constitute a legal offence, nor does it necessarily result in an adverse environmental impact; minor transgressions merely incur additional taxation based on a higher unit rate for the excess. Environmental standards, maximum acceptable concentrations (MACs), are specified in normative documents including ambient air quality, workplace air, water quality, soil and vegetation. Where a direct comparison is feasible, Russian MACs are invariably at least as stringent as international environmental quality standards such as those adopted by the World Bank Group and World Health Organisation. 1.11.2 Status The operations include 3 underground mines, an open pit site and a coal preparation plant all located within 20 km of the Mezhdurechensk municipality, Mezhdurechensk district where Raspadskaya Coal Company has its headquarters. The land surrounding the operating sites has a hilly terrain and the coal deposits overlay mostly taiga forest. There is a long history of coal mining in the region and there are other mining and processing operations in the vicinity. With the exception of the open pit, the mine sites occupy relatively small footprints and have a relatively low potential for significant environmental impact. Potentially sensitive receptors are the forest lands which border the mine sites and the river systems which receive the permitted discharge of treated mine water. The area is in the upper catchment of the Ob river, which receives discharge waters from other coal mines as well as Raspadskaya. In general, residential areas are not close enough to the mine sites to be affected by emissions or noise.

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1.11.3 Environmental Management Raspadskaya Coal Company operates a partially centralised environmental organisational structure. Environment issues are managed by specialists in the Department of Labour and Environmental Safety at the companys head office, which reports to the Technical Director. In addition there is an environmental department at each of the operating sites with direct responsibility for permitting, monitoring and compliance issues. The site environmental functions report both to the Raspadskaya Coal Company Department of Labour and Environmental Safety and their respective mine Chief engineers. At present environmental management is based on the requirements of Russian laws and regulations under the authority of the Federal Agency for Supervision of Natural Resource (Rosprirodnadzor). Each site has an approved environmental management plan, which is updated annually, and includes actions to be taken and cost estimates. The company stated its intention to commence preparations in 2012 to implement a system according to ISO 14000 environmental management at all of the sites. In the last 3 years the Company has not received any significant fines or penalties due to non-compliance with permit conditions. Some relatively small fines, totalling less than RuR30,000 were incurred due to administrative non-conformance. 1.11.4 Rehabilitation 1.11.4.1 Progressive Overburden, mining waste and process tailings are stored according to approved designs and regulations. Some in-pit dumping of rock is proposed in the next phase of Raspadsky which will minimise land disturbance and future restoration costs. Facilities are installed to protect mines and storage facilities and also to prevent pollution from storage areas entering surface and ground waters. On-going rehabilitation includes dust suppression at the tailings storage facilities by cultivation the completed dam walls. Non-process waste materials are collected for removal by specialist organisations. 1.11.4.2 Closure The mine designs include preliminary concepts on restoration activities with an assessment of their financial feasibility. Despite the relatively long timescale, it is necessary to establish a mechanism for funding in line with international requirements. Cost estimations for closure at individual mines and process facilities are included in the operational Company business plans where IMC considers adequate provision has been made within the long term outline closure plans. 1.12 Statutory Authorisations and Licensing

A registered Sub-soil Use Contract is required to be entered into with the relevant governmental body for all commercial sub-soil use, exploration and/or exploitation operations in Russia under the Sub-soil Law. IMC reviewed the statutory authorisations for the mines and operations and a summary of the status is given in Table 1-8 below. IMC believes all licences and permits are in place and correctly located but has not proven the legal title. Table 1-8 Deposit OAO Raspadskaya Raspadskaya Main Licence 13781 Mining of the Raspadskoye bituminous coal deposit, Seams 1 to 14. Exploration and mining at the Raspadskaya 2 site of the Raspadskoye bituminous coal deposit, Seams 3-3a to 10 down to the 250 m level. Exploration and mining at the Raspadskaya 3 site of Raspadskoye bituminous coal deposit, Seams 3 to 11. Exploration and mining a tthe Raspadsky 4 site of Raspadskoye bituminous coal 11.10.2006 1.03.2014 Statutory Authorisations Principal Sub-Soil Operations License Type of Licence Date of Issue Date of Expiry

Raspadskaya 2

KEM13782

11.10.2006

15.11.2023

Raspadskaya 3 Raspadskaya 4

KEM01468 KEM01464

11.01.2010 26.11.2009

31.12.2034 25.11.2029

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Deposit

License

Type of Licence deposit, Seams 1 to 13.

Date of Issue

Date of Expiry

OAO Mezhdurechenskaya Coal Company 96 MUK 96 Main Licence KEM00635 Underground coal mining on the Gorny site of the Raspadskoye bituminous coal deposit, Seams 15 to 19. Exploration and mining at the SeveroOlzherassky site (Mine Raspadskaya 2 Upper) of the Raspadskoye bituminous coal deposit, Seams 11 to 19. 17.01.2002 1.12.2019

Raspadskaya2 Upper

KEM13024

21.03.2005

20.03.2025

ZAO Raspadskaya Koksovaya Mine Field No. 1 KEM15030 Mining at Mine Field No. 1 of the Olzherassky coal bituminous deposit, Seams III to VI. Mining at Mine Field No. 2 of the Olzherassky coal bituminous deposit, Seams III to VI. 01.11.2010 01.07.2053

Mine Field No. 2

KEM11578

17.06.2004

01.07.2057

ZAO Opencast Raspadsky Glukhovsky KEM13446 Mining at the Glukhovsky Open Pit site of Raspadskoye bituminous coal deposit, Seams 1 to 13 Exploration and mining at the Raspadsky IX-XI site of Raspadskoye bituminous coal deposit, Seams 3 to 17. 17.01.2006 20.12.2025

Raspadsky Site IXXI 1.13 Costs

KEM13873

13.12.2006

30.11.2026

OAO Raspadskaya has four operating mines being three underground mines namely Raspadskaya, MUK 96, Raspadskaya Koksovaya and one surface mine Raspadsky, which produces and sells raw coal and washed coal which is predominantly of a coking quality. The Company also has a central coal washing facility which is capable of treating the coal from all four mines. It has an on-going track record of operations and costs for all mines and the coal washing plant. 1.13.1 Raspadskaya Major Incident 2010 The Raspadskaya mine suffered a major explosion in 2010 which has been addressed earlier in this report. The financial effects of this have been severe curtaining production and incurring significant amounts of both operational and capital investment costs. The additional costs both incurred and projected to be incurred as reported by the Company are as shown below in Table 1-9 below. Table 1-9 Additional Costs Resulting from the 2010 Major Incident 2010 to 2013 Actual Category Operating Costs Capital Investment Total 2010 US$ M 71.7 21.3 93.0 2011 US$ M 80.6 10.0 90.6 Projected 2012 2013 US$ M US$ M 63.5 21.7 11.2 74.7 0 21.7 Total 237.5 42.5 280.0

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1.13.2 Operating Costs Future estimates of operational expenditures for operations for all mines and the coal wash plant have been made and included into a corporate financial model using 2011 budget figures as a base. An economic model was generated, based on the data provided by OAO Raspadskaya, to include the estimation of expenditures and income for a 97 year period of reserves development from 2012 to 2108. Costs for service providers such as administration and sales departments are similarly charged to each operation as appropriate and are intended to achieve cost recovery only. Revenues from the sale of coal are accounted for centrally within the group. IMC examined the forecasts of operating costs for all operations as prepared by the management of the Company. The forecasts were compared, where possible, with actual costs in previous years and, where considered appropriate, were modified following discussion with the Company. IMC considers the production plans and budgets to be attainable. The historic cash operating costs per tonne of coal produced for sale for the years 2009 to 2011 are summarised in Table 1-10 below. Table 1-10 Production Cash Cost per Tonne of Coal Production 2009 US$/t Cash Cost per Tonne of Coal Production 19.54 2010 US$/t 28.18 2011 US$/t 49.74

The net cash cost per tonne of coal production are as quoted in the Companys MDA statements issued for the three years in question where: Estimated cash cost per tonne of raw coal used in concentrate preparation is a computed value calculated based on the volumes of raw coal used in concentrate preparation and the average cash cost per tonne of raw coal produced; Raw coal has been restated in tonnes of coal concentrate at the output ratio of 73.3% for 2011, 76.9% for 2010 and 73.4% for 2009; and

Cash costs are expressed in real terms. IMC consider the costs used as a base reasonable and the method used for estimation logical. 1.13.3 Capital Costs Capital expenditure estimates prepared by the Company consist of two elements. There is the ongoing sustaining capital expenditure for the operating mines. There are also a number of significant projects which have been included by the Company. Raspadskaya Coal Company developed a long term investment plan. The detailed 20 year plan was provided to IMC. The parameters of year 20 of operations (2032) were used by the Company as annual values for the long term planning. Capital expenditure estimates beyond this 20 year period have been included as a flat rate general provision for each year. The capital expenditures plan contains data on development operations, procurement of required mining and other equipment, construction and assembly work. The Companys investment programme for 2012 is in line with the annual budget. The programme for 2013 and following years is based on the Companys forecast plan. In 2012 it is planned to invest RuR 5,650 million (USD 182.26 million at RuR 31.00 to USD), including VAT, including the following: Raspadskaya Koksovaya mine construction design Development operations Construction and assembly Equipment RuR 1,167 million RuR 1,169 million RuR 1,452 million RuR 1,778 million USD 37.65 million; USD 37.71 million; USD 46.84 million; USD 57.35 million.

The largest investments, RuR 2,989 million (USD 96.42 million) are allocated to Raspadskaya mine, including RuR 347 million (USD 11.19 million) for the accident response activities.

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The total long term capital expenditures of Raspadskaya Coal Company in 2013-2032 total RuR 88,284 (USD 2,847.87 million), including VAT. The capital investments are distributed as shown in Table 1-11 below. Table 1-11 Capital Investment Distribution Enterprise Raspadskaya mine MUK 96 Raspadskaya Koksovaya mine Raspadsky opencast Olzherasskoye Mine Development Department Raspadskaya CPP Tomusinskaya Loading and Transportation Department Capital Allocation 45.7% 12.9% 18.3% 17.8% 2.0% 2.2% 0.9%

IMC examined the capital cost estimates prepared by management for the period 2012 to 2108. No additions were made to the figures by IMC. IMC considers the production plans and budgets to be attainable. In the opinion of IMC, the capital expenditure estimates are adequate for the estimated planned outputs. 1.13.4 Rehabilitation Expenditures The total of rehabilitation expenditures at the closure in the amount of RuR 479.24 million, USD 15.46 million, (in prices as of the assessment date) have been taken into account. The analysis of this total by individual site and the discounted values of the projected expenditures are shown in Table 1-12 below. Table 1-12 Rehabilitation Expenditures by Site and Discounted Expenditures Item Raspadskaya Mine Raspadskaya Koksovaya Mine MUK 96 Raspadsky Open Pit Raspadskaya CPP Total RuR 000s Total USD million
Note

Rehabilitation Expenditures, 000 RuR 210,030 29,286 17,762 148,315 73,848 479,241 15.46

Operation Life After 2032 75 27 45 8

Closure Date 2108 2060 2078 2041 2108

Discount Rate 0.000 0.007 0.001 0.046 0.000

Discounted Rehabilitation Expenditures 12 206 20 6,885 4 7,128 0.23

These expenditures are taken into account for in the NPV calculation of reserves value. The progressive annual rehabilitation expenditures are included into the opencast production costs.

1.14

Sales and Marketing

Raspadskaya sell mainly coking coal into the Russian domestic and export markets. It is planned to increase the current production to 18 Mt ROM with sales at 12 Mt thus sales for an extra 7 Mt will have to be made to new customers, which are likely to be export as discussed in the marketing Section 7. The majority of these sales need to be on long term contracts to give a stable cashflow. Selling prices of concentrate are market and client specific subject to commercial negotiation and agreement and are not quoted due to commercial sensitivity. Weighted average selling prices of concentrate by market and as received by the Company for the last three years of operation are as shown below in Table 1-13 below.

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Table 1-13

Average Concentrate Selling Prices 2009 to 2011 2009 Region Sold (Basis) US$/t Russia (FCA) Export (FCA) Export (FOB) 62.8 53.3 92.5 US$/t 117.3 108.5 150.6 US$/t 159.1 157.0 n/a 2010 2011

The weighted average revenues per tonne of coal production shown above are as quoted in the Companys MDA statements issued for the three years in question. 1.15 Financial Projections

IMC have reviewed the physical and financial projections which together constitute the Companys forward business forecast and are presented as their business model. IMC have discussed these projections with the Company and found them to be acceptable. Based upon the Business Plan models provided, an estimation of the value of the combined elements of the Company was made on an all equity, post-tax basis. Summary physical and financial results of extracted from the Companys business model for all of the groups operations are presented in Table 1-14 and Table 1-15 below. Whereas IMC has complied with the ESMA guidelines, March 2011, Appendix II (iii) (8) (a) by discussing the efficacy of the LOM and production forecast rates at various places within this report the inclusion of year by year statistics is at the express request of the Company. IMC takes no responsibility nor provides any guarantee that any of the specific forecast production figures will be achieved as stated.

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Table 1-14 1 Item 2012 Production SHCC - Raspadskaya Mine SHCC MUK 96 mine Mt Mt Mt Mt Mt Mt Mt USD M USD M USD M USD M USD M USD M 3.200 1.000 8.078 7.086 0.000 0.992 930 335 136 89 152 209 2.000 SHCC - Raspadsky Open Pit HCC Raspadskaya Koksovaya Mine Sales SHCC Concentrate (GZh, GZhO) HCC Concentrate (K, KO) HCC Raw Coal Net Sales Costs SG&A (inc Liquidation & Restoration) Depreciation and Amortisation Total Capital Expenditure Free Cash Flow Total Cash Operating Costs Total Total Saleable Production Mt 4.360 6.500 2.120 3.500 1.300 10.348 9.090 0.078 1.179 1,216 469 96 94 161 400 Total ROM Production Mt 10.560 13.420 2013 Detail Units 2014 14.155 7.000 2.500 3.500 1.155 10.866 9.750 0.072 1.044 1,302 470 70 103 117 542 2 3

Summary of Physical and Financial Projections for OAO Raspadskaya, Years 2012 to 2021 4 2015 16.680 8.500 3.000 3.500 1.680 12.676 11.250 0.472 0.954 1,500 495 75 106 130 648 5 2016 17.550 9.000 3.000 3.500 2.050 13.300 11.625 0.696 0.979 1,572 511 77 109 154 687 6

10

2017

2018

2019

2020

2021

18.475

19.100

19.500

19.500

19.500

10.024

10.600

10.500

10.500

9.163

3.000

3.000

3.000

3.000

3.000

2.976

2.500

3.000

3.000

4.337

2.475

3.000

3.000

3.000

3.000

13.976

14.481

14.746

14.754

14.734

12.000

12.075

12.375

12.375

12.375

0.927

1.104

1.167

1.153

1.190

1.050

1.302

1.204

1.225

1.169

1,656 519 78 119 150 751

1,711

1,749

1,749

1,749

529

533

531

525

79

80

79

80

126

129

127

123

157

127

114

180

784

843

864

802

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Table 1-15 11 Item 2022 Production SHCC - Raspadskaya Mine SHCC MUK 96 mine Mt Mt Mt Mt Mt Mt Mt USD M USD M USD M USD M USD M USD M 3.000 14.528 12.375 1.573 0.580 1,749 531 80 136 89 891 4.500 3.000 SHCC - Raspadsky Open Pit HCC Raspadskaya Koksovaya Mine Sales SHCC Concentrate (GZh, GZhO) HCC Concentrate (K, KO) HCC Raw Coal Net Sales Costs SG&A (inc Liquidation & Restoration) Depreciation and Amortisation Total Capital Expenditure Free Cash Flow Total Cash Operating Costs Total Total Saleable Production Mt 9.000 9.000 3.000 4.500 3.000 14.325 12.375 1.950 0.000 1,749 524 79 128 165 819 Total ROM Production Mt 19.500 19.500 2023 2024 19.500 9.000 3.000 4.500 3.000 14.325 12.375 1.950 0.000 1,749 517 79 131 86 904 Detail Units 12 13 14

Summary of Physical and Financial Projections for OAO Raspadskaya, Years 2022 to 2031 15 2025 19.500 9.000 3.000 4.500 3.000 14.325 12.375 1.950 0.000 1,749 514 78 124 126 864 2026 19.500 9.000 3.000 4.500 3.000 14.325 12.375 1.950 0.000 1,749 504 79 127 138 860 16

17

18

19

20

2027

2028

2029

2030

2031

19.500

19.500

19.500

19.500

19.500

9.000

9.000

9.000

9.000

9.000

3.000

3.000

3.000

3.000

3.000

4.500

4.500

4.500

4.500

4.500

3.000

3.000

3.000

3.000

3.000

14.325

14.325

14.325

14.325

14.325

12.375

12.375

12.375

12.375

12.375

1.950

1.950

1.950

1.950

1.950

0.000

0.000

0.000

0.000

0.000

1,749 507 78 132 106 892

1,749

1,749

1,749

1,749

508

501

499

498

78

78

77

76

127

125

114

105

129

70

75

74

866

931

924

924

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1.16

Valuation of Reserves

1.16.1 Methodology and Assumptions The valuation of OAO Raspadskaya has been performed using the discounted cash flow valuation method and was evaluated in two stages. IMC performed the valuation based on the operating costs, capital expenditures and revenues projected for the Company. Based on these results, depreciation, taxation and working capital requirements were provided by the Company to IMC for inclusion in this valuation to prepare a post-tax. IMC has accepted the depreciation, taxation and working capital as provided and accept no responsibility as to their accuracy. Such valuations described below exclude financing costs, borrowings & share related transactions. The following key factors were considered in the valuation process. Capital Expenditure The level of capital expenditure as scheduled in the development of the Net Present Value (NPV) calculations is sufficient to both maintain current production capacity and to promote new production capacity where required. Capital forecasts include expenditures for replacing major equipment on a periodic basis, as well as development capital for opening new areas for mining and installing additional processing facilities where required. Plant and Equipment The cost of maintaining, repairing and, where necessary, replacing items or components, is included in the cash cost estimates or in the capital expenditure schedules. Except in instances where equipment is planned to be transferred to another operation, plant and equipment have not been valued separately. As the plant and equipment is an integral component in the generation of the cash flows used to estimate the value of the Ore Reserves, the value of the plant and equipment is included in the reserve value. Any residual value is considered not to be material. Selling Price The main products of OAO Raspadskaya, raw coal and coal concentrate, are international commodities and are subject to both short term and cyclical variations. The valuation model is based on forecast prices of the major commodities provided by the Company. Other Key Parameters Other key valuation parameters used in the valuation include the following: The Russian Rubble to US Dollar (RuR/US$) exchange rate is projected to average RuR31.0 to US$1.00 throughout the whole of the cash flow period; The valuation is as at 31st December 2011; Cash flows are expressed in real terms and have been discounted according to end of year convention; Cash flows are based on available reserves forecasted to the shorter of the each of the mines life being until 2108 for Raspadskaya, until 2071 for MUK 96, until 2060 for Raspadskaya Koksovaya and until 2046 for Raspadsky Open Pit; and

The NPV was calculated using a real discount rate of 10.49%. The model covers a 97 year period of forecast. Where reserves will be worked-out earlier than the selected forecasting horizon, costs and income were calculated till the last year of scheduled mining works. 1.16.2 Valuation Results Discounted cash flows (DCF) resulting from modelling reflect the cash value of reserves. The discount rate of 10.49% has been used as a benchmark but such discount rates are always subjective and investors may have a different approach. Thus, IMC has calculated the Company valuation using a range of discount factors. Summaries may not add up due to rounding. Table 1-16 and Table 1-17 below summarise the value of the Ore Reserves both at the post-tax level. Table 1-16 Base Case Valuation of Reserves NPV Based on Post Tax Results Total Reserve (US$ millions) Base case valuation 7,027

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Table 1-17

Summary of Valuation of Reserves NPV Based on Post Tax Results NPV (US$ million) 5,766 6,342 7,027 7,854 8,867

Real discount rate % ++2% +1% 10.49% -1% -2%

1.16.3 Sensitivity Analysis While IMC concludes that the key indicators for the Company, as presented above, are realistic relating to costs and the production mine plans based on Coal Reserves, a sensitivity analysis has been prepared for a number of variables. Mining and marketing of coal contain variables that are not always predictable. Potential variables include those directly associated with the mining and processing operations, such as cost and production levels, as well as those that are external to the mining and processing operations, such as market prices. Standard sensitivity analyses for cash flow have been undertaken with respect to variation in sales price, output, operating costs and capital investment costs. Operating Cost This could vary as a result of changes in component costs, such as labour or supplies, or from variances in productivity. IMC consider that the costs presented are reasonable but, in order to give a demonstration of the effect should costs escalate, has calculated a sensitivity of plus 10% in operating cost. Production Production level can be affected by variances in productivity or market place demands. Outputs predicted by the Company are achievable but, in order to demonstrate the effect, IMC has calculated a sensitivity of minus 10% in production. Costs do not reduce in proportion since operational expenditure has fixed and variable elements. Fixed elements for each aspect of the Companys activity have already been stated. Capital Cost Variances in capital costs could result from quantity or market prices of capital items. The effect of a simple increase of 10% in capital cost is calculated. Sales Price Market forces dictate the price of coal. In recent years, prices have been high until the global crisis and have since recovered very strongly. There are clear indications that other prices have recovered but, nevertheless, such commodities are subject to major fluctuations and therefore, IMC has calculated the effect of a drop in sales price of 10%. A summary of the effect of sensitivity of the valuation of Coal Reserves to these variables is given in Table 1-18 below. Table 1-18 Sensitivity Analysis of Reserve Valuation NPV Based on Post Tax Results Base Case 7,027 Operating Cost (+10%) 6,688 Production (-10%) 6,015 Capital Cost (+10%) 6,925 Sales Prices (-10%) 5,849

NPV (US$ million) Based on post tax results

1.17

Conclusions

IMC concludes from the independent technical review that: managements geological and geotechnical knowledge and understanding is of a satisfactory level to support short, medium and long term planning as appropriate and operations are well managed at an operating level; the mine plans appropriately consider geological and geotechnical factors to minimise mining hazards;

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the Companys mining equipment (either in place or planned in the capital forecasts) is suited to its mine plans and is adequate, with minor adjustments, for the production plans; coal processing and other infrastructure are capable of continuing to supply appropriate quality products to the markets at the forecast production plans; After conversion to the international format the LTIFR can be seen to be better than other comparable operations before and after the explosion. The LTISR is also better in the years before and after the explosion. The Company has lost 91 people in an explosion but are to be commended on the approach that has been adopted to rehabilitate the mine and the initiatives that have in introduced; environmental issues are managed and there are no issues that could materially impede production nor are any prosecutions pending; the assumptions used in estimating both capital and operating costs are appropriate and reasonable; capital and operating costs used in the financial models incorporating minor adjustments by IMC reflect the mine plans, development and construction schedules and the forecast production levels; special factors identified by IMC are well understood by management and appropriate action to mitigate these risks is being taken. Further, the mine plans and cost forecasts appropriately account for these risks; and management operates a management accounting system and are able to monitor and forecast production and cost parameters. Management use accounting systems to IFRS standards.

IMC has estimated the value of OAO Raspadskaya coal assets at a post tax level as US$ 7,027 million assuming a real discount rate of 10.49%, an exchange rate of RuR/US$ 31.00 and product prices, capital and operating costs and production forecasts which are soundly based.

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2
2.1

RASPADSKAYA UNDERGROUND MINE

Maps and Plans Raspadskaya Underground Mine Seam 7

Plate 2

IMC visited all of the operations in January 2012. 2.2 Geology

2.2.1 Regional Geology Coal seams of the Raspadskaya area are located within the gently dipping Permian sediments of the Ilyinskaya and Erunakovskaya sub-series of the Kolchuginskaya series. This is a part of a very extensive coal field which lies in the southwest part of the Tom-Usinsk geological-economic area of the Kuznetsk Basin (Kuzbass). The licensed area is represented by Erunakovskaya sub-series of Kolchuginskaya series of Upper Permian age and Conglomerate series of the Jurassic and overlaying Quaternary alluvial sediments. 2.2.2 Raspadskaya Geology 2.2.2.1 Tectonic Structure Raspadskaya 2 Mine site and Raspadskaya Mine area are located within a large fold structure which is part of a monocline that is characterized mainly by a gentle (6-12) northwest dip of the coal seams and strata on an azimuth of 300-330. Within this structure minor folds and faulting are observed. Some of these disruptive structures are referred to as low angle cross-reverse faults (thrusts) of sub-meridian strike. The fault planes basically consist of closed fractures without shatter zones. Tectonic tension increases from the upper to the lower seams. Development workings revealed hundreds of minor faults with displacement amplitude smaller than thickness of seams. The greatest number of these faults is seen in the easterly direction, in blocks 5 and 5a in the left bank of the Olzheras River. These faults occur per 10, 20, and 100 m, their length vary up to 50-600 m. Strike of faults in Seam 9 is towards the north-west and that in underlying seams 7-7a and 6-6a is to the north-east. Disturbances with amplitudes of some 4 to 33 m are seen, which have significant length, up to 1.5-3 km. There are four faults of such nature in seams 7-7a and 6-6a in the western part of the mine area (Block 3). These faults strike to the north-eastern, they break through the seams every 300-400 m, which prevents effective mining. At the Raspadskaya 2 Mine site, which is located at a depth of 300-700 m, seam disturbance is less in comparison with the upper horizons of the current Raspadskaya Mine. Faulting increases from the central part of the Raspadskaya area to the eastern boundary (Block 5) and to the western limit (Blocks 3 and 2). Fault zones of 50 to 200 m wide are formed by a series of contiguous small amplitude (0.2-1.0 m) faults. Shallow folds are manifested within the seams. Dipping angles of the limbs are 1-10, the depth of troughs is up to 3-4 m. The folds die out within 1-2 extraction panels. 2.2.2.2 Stratigraphy According to the unified stratigraphic scheme of 1981, the coal-bearing sediments within the mining areas of Raspadskaya 2 Mine and Raspadskaya Mine are referred to as the Kolchuginskaya series of Upper Permian age. They are divided into two sub-series (bottom to top). Ilyinskaya, seams I to XVII Erunakovskaya, seams 1 to 20. Coal-bearing deposits are commonly overlapped by coal-barren Jurassic sediments. These Jurassic sediments unconformably overlay the coal-bearing measures with shallowly dipping strata and are mostly represented by conglomerates with the carbonate-clay-cement. In the upper zone they are weathered to a blocky or pebble state. The sequence of Jurassic deposits is also presented by subordinate siltstones and sandstones. The Ilyinskaya sub-series is divided (bottom to top) into Kazankovo-Markinskaya and Uskatskaya suites.

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The sequence of Kazankovo-Markinskaya suite is composed by sandstones and siltstones, with clayey rocks being subordinate. Sandstones of different grain size are characterized by oblique stratification. Siltstones are mostly dark gray colour and coarse-grained. The sequence of Uskatskaya suite has interlaminated and interlayered siltstone and sandstone with the inclusion of coal seams (1 to 7, 7a). The siltstones are fine and medium-grain, characterised by inconsistent thickness and lithological layers. To the dip and strike, they often are replaced by fine and small grain sandstones, sometimes with frequent intercalation of siltstones and sandstones. Sandstones are of subordinate importance. Thickness of the suit is 190 m with workable coal-bearing index of 6%. The Erunakovskaya sub-series is represented by Leninskaya and Gramoteinskaya suites. The lower boundary of Leninskaya suite is along roof seam 7-7a, and the upper boundary is the floor of seam 19. The thickness of the suite is 500 m with a productive coal-bearing index of 4%. The suite is accessed to its full depth only in its north-eastern area; the rest of the area of the suite being cut by surface erosion with replacement of the Jurassic sediments at different stratigraphic horizons. The Gramoteinskaya suite measures in the deeper area are seen only by boreholes in Exploration Line IV, which lies stratigraphically above the Raspadskaya 2 Mine site and include coal seam No.20. In cross-section of the suite there are predominantly fine-, medium- and coarse-grained sandstones with siltstones being subordinate in the sequence. Quaternary sediments cover Paleozoic and Jurassic sediments and represented by 2 to 4 m thick loams within watersheds, as well as by 10 to 12 m thick sand-pebble sediments in river valleys. 2.2.2.3 Coal Seams and Quality Seams 9-10, 7-7 and 6-6 considered for mining are referred as thick seams (total average thickness of 3.74.35 m), and split leaves of the same seams 10, 9 and 3-3 are referred to medium thickness seams (1.75-2.8 m). All seams are consistent on thickness and coal quality and being of predominantly of complex structure; they split from the east to west. Seam 9-10 occurs in a limited area in outermost south-eastern part of Raspadskaya 2 Mine and in the southern part (Block 5) of Raspadskaya Mine. The overall average seam thickness in the area is 4.4 m. The seam splits into two bands (seams 10 and 9). The seam splitting line is diagonal to its strike, towards the northeast-southwest. Seams 10 and 9 occur in the majority of the area and are characterised by consistent thickness. The average thickness of Seam 10 in the area of Raspadskaya Mine is 2.33 m; and that of Seam 9 is 1.70 m. Within Raspadskaya 2 mine area, thicknesses of these seams reduce slightly to 1.84 m for Seam 10 and 1.55 m for Seam 9. Seam 7-7 has an average thickness of 3.9 m. It is consistent two leaf seam until the seam splits into Seam 7a and Seam 7 in the western part of the area under consideration. The seam split line crosses diagonally Blocks 3 and 4 of the ongoing mine from SW to NE, as well as the central part of Raspadskaya Mine site. Seam 7a has a limited inconsistent presence with a seam thickness of 1.1-2.1 m. Seam 6-6 is not split into bands. It is consistent and has overall average thickness of 4.53 m. Seam 3-3a in Block 5a has a thickness from 1.80 to 2.67 m, average of 2.35 m. In the western part of Block 4 and Block 3, Seam 3-3a is split into seams 3 and 3a with thicknesses of 1.3 and 1.1 m respectively. Coal from the Raspadskaya 2 Mine site and the Raspadskaya Mine area are referred to as (GZh, gas-fat) grade. Seam 10 is (GZhO, gas-fat-semi-lean) and . The coals are coking with: Clean coal ash content varying from 7.8 to 9.1%, and 11.9 to 17.2% with allowance for coal dilution; Volatile matter is 37.6 to 38.3%; and

Plastimetry is 17-23 mm. The properties of the interburden rocks are predominantly represented by medium hardness sandstones and siltstones. The strata is relatively consistent, although occasionally the sandstones have an irregular contact with the siltstones. In some cases the erosion has also affects the seams, and washout channels are developed. The interburden rocks are easily caved. However, the sandstones are porous and permit water inflow to the mine. This hazard decreases with depth of cover and is not a major problem in current and planned working areas. The mine has been operating for almost 35 years and has worked in all of the mineable seams therefore there is a high degree of confidence regarding data, both geological data and production data.

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The coal from the Raspadskaya Mine is in demand because it is high volatile, high fluidity coking coal which is needed to blend with low volatile coking coal before it is possible to make metallurgical coke. The coal is low sulphur, low phosphorus and has low inherent ash. Quality varies slightly between seams, but all seams meet the market requirements for this type of coal. The main quality parameters for each of the currently working seams are shown in Table 2-1 below. Table 2-1 Seam 10 9-10 9 7-7a 7 6-6a 3-3a Coal Type Coal Quality Moisture (% adb) 1.65 1.27 1.35 1.30 1.23 1.23 Volatile % (daf) 36.8 37.6 38.3 37.9 38.0 37.6 37.2 Ash % 13.4 8.0 10.0 15.6 8.59 12.7 Fixed Carbon 84.70 84.29 84.82 85.52 Vitrinite Reflectance 73 78 75 79 Sulphur % 0.32 0.6 0.49 0.53 0.65 0.47 0.99 Phosphorus % 0.060 0.045 0.055 0.055 0.062 0.079 CV (kcal/kg) 8,375 8,418 8,419 8,398 8,495 8,495 8,484

2.2.2.4 Other Geological Considerations There are a number of natural threats or risks that can affect the mining operations. The recognised common threats in any mine operations are: Hydrogeological issues Gas and dust presence Spontaneous combustion

It is the opinion of IMC that these natural threats to the mining are known to the Company management and that the plans are in place to mitigate their potential effects. Hydrogeology Hydrogeological conditions of the subsoil site and the Raspadskaya mine area are complex. There are three water-bearing rock complexes: Quaternary unconsolidated deposits of river valleys and streams; Jurassic cemented sediments; and

Coal-bearing sediments containing Permian strata. Unconsolidated sediments of Quaternary age are shown as diluvial-alluvial formations up to 5 m thick within watersheds and slopes and alluvial sediments of the Olzheras River and its tributaries. A sequence of alluvial sediments in the Olzheras River valley is represented by loams in the upper part and by sand-pebble horizon in the lower part. Thickness of loams varies from 3.5 to 12 m. The sand-gravel level is waterlogged everywhere and constantly. The underground mine leaves protection pillar up to a depth of 150-275 m during seam extraction under the Olzheras River valley. Jurassic sediments overlay the coal-bearing measures in the northern part and south-western part of the mine area, where the thickness varies from 0 to 280 m. The lithological composition of strata is defined mostly by conglomerates with interbedded sand-shale and coal. The water-bearing capacity is irregular with most water occurring to a depth of 100 m. The mine leaves pillars under Jurassic sediments. The water-bearing capacity of Permian coal-bearing measures is inconsistent. It depends on the degree of fracturing, lithology, and geomorphic position. The highest degree of water-bearing capacity is within a zone of physical and chemical weathering up to a depth of 150-200 m. Raspadskaya 2 mine is characterized by low water-bearing capacity. The main sources of water inflow into the mine workings are natural reserves and natural groundwater resources.

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Competent Persons Report on Mining Assets Russia Actual water makes into Raspadskaya Mine in 2007 were as follows: mean annual (normal) 1,593 m3/h; and

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maximum short-term during the snowmelt 3,957 m3/h. The total water-make in the water pumping complex while working in the Raspadskaya 2 Mine taking into account the water overflow from the worked out areas of the inclined shaft field of the on-going mine will be: mean annual (normal) 11,471 m3/h; and maximum short-term during the snowmelt 4,057 m3/h.

Gas The methane content of the coal seam grows consistently with the stratigraphic depth. There are a number coal seams within the deposit which are thick and have high in-situ gas contents in the order of 25 m3/t. These gas horizons will interact during multi-seam working and composite emissions should be considered in the mine layout and production sequencing. Spontaneous Combustion Coals of all seams within the mine field are prone to spontaneous combustion, some having short incubation periods. 2.3 Reserves and Resources

The purpose of the valuation process is to confirm the reasonableness of Raspadskaya reserve and resource estimates and to establish that the reserve base is sufficient to enable the Companys production plan to be achieved. The reserves and resources are stated in accordance with international standards. 2.3.1 Nature of Evidence 2.3.1.1 Exploration The coal deposit was explored in the period from 1950 to 1970, 1999-2001. The geological exploration was accompanied by topographic surveying to scale 1:2000 and after 1974 by stereo-topographic surveying to scale 1:2000. All terrain variations due to mine operations were recorded by the Surveyor Department. To track coal seam outcrops the deposit was explored by a system of exploration mine workings (pit-holes, bellpits, ditches, coiled tubing drilling) and boreholes were used to track coal seam depth. Due to geological structure specifics exploration boreholes were drilled along survey lines across the strike of the coal-bearing strata. ZIF1200, ZIF-650 and SBA-500 drilling rigs were used for drilling boreholes. To recover core all boreholes were drilled using diamond tools. Waste rock was bored using RC drilling. Core recovery in 1950-70 exploration boreholes made 55%, and in 1999-2007 campaign drilling was characterized by higher core recovery of 67%. Seismic investigations were carried out in one of the deposit districts to identify coal seam faults and their throw. Interpretation of these investigations indicated some small faults on the exploration profile. Up to the present time there are no data that could confirm these faults since roadways have not reached this district. 2.3.1.2 Borehole Data Exploration drillholes within the main mine claim (12 km x 4.5 km) are drilled at spacing of 300 m between the drillholes and 300 m between the survey lines to a depth from 200 to 700 m. In total 573 drillholes were drilled at the early exploration stage. Later additional drillholes were drilled within the main mine claim (23.4 drillholes per 1 km2) and in the North in the adjoining Raspadskaya 2 mine claim (9.7 drillholes per 1 km2); currently the number of drillholes within Raspadskaya districts totals 1,442. Geophysical logging, including density gamma-gamma logging, gamma logging and SP logging, was carried out in all drillholes to control the seam thickness determined by core drilling. Samples from the core were taken for geotechnical analysis to predict mining conditions. Also hydrogeological investigations were carried out in some drillholes. 2.3.1.3 Sampling and Assay Data Coal seam core was sent for analyses in an independent laboratory (Central analytical coal laboratory) where standard analyses for calorific value, ash, volatiles, plastimetry and partly for sulphur and phosphorus were made.

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Analyses of samples taken in seam intersection areas in underground development headings and production faces were used for reserve and resource estimates. Every single sample was cut vertically along the seam thickness, and a separate sample was taken in waste parting and in seam plies. On the average the waste and coal plies samples to the full seam thickness samples ratio was 1:10. ROM coal samples were taken by means of an automatic sampler on delivery to the CPP. Samples were analyzed at the CPP; all data were sent to the mine for comparison of the actual coal quality and the data from the estimation blocks. These data were used for confirmation of estimated reserves. 2.3.1.4 Survey Data Detailed maps and cross-sections were prepared based on drilling results. 2.3.1.5 Geological Modelling Computer modeling and reserve estimation methods are not used by the mine geologists, since there is no electronic data base of the deposit. Reserve estimates are undertaken manually. 2.3.2 Modifying Factors To evaluate the resources under JORC certain criteria must be in place to demonstrate that these resources are economic and meet the modifying factors. A costed business and mining plan that covers the mining areas until the year 2032 or whatever the cessation date before 2032; Production plans with mining layouts are available for the target seams with appropriate mining parameters and IMC have only assessed those tonnages that are shown in the current business plan as reserves; Evaluation of the reserve has only been done for the period of the mining plan as it is determined that these are demonstrated as being economic; It is assumed that proved reserves will be worked first in the course of depletion and that the balance of the plan if required will then come from the probable reserve if any; and

If the mine license expires before the business plan end-date, it is assumed that there is a reasonable expectation that the license will be renewed by the authorities. 2.3.3 Verification Resource and mined tonnages are reconciled on a regular basis by the Company. Production forecast are based on samples taken in development headings; the actual parameters were based on samples from operating production faces. Randomly selected geological areas, where the original resource estimations and resource categories were assigned, were compared against the estimated figures by IMC and the results were generally found reasonably comparable to each other. IMC saw no reasons in the estimations to assume these were not correct and is of the opinion that this is reasonable and that the methods used to calculate the tonnages are valid. In addition to the random borehole records checks, the schedule plans were re-checked. Therefore it was concluded that the seam thickness and the coal density used to calculate tonnages are considered reasonable and compare well with the raw data. 2.3.4 Losses and Dilution The reported recoverable tonnages have taken into account geological and mining losses in the planned exploitation of the blocks based on operational records and the forward plans as shown in Table 2-2 below Table 2-2 Raspadskaya Losses and Dilution Mine Raspadskaya mine Raspadskaya mine 2 Raspadsky 4 underground Raspadsky 4 opencast mining Raspadskaya mine 3 License KEM 13781 TE KEM 13782 TE KEM 01464 TE KEM 01464 TE KEM 01468 TR Losses and Dilution % 32.17 16.08 13.00 12.00 16.46

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2.3.1 Reserves and Resources Statement The reserves and resources have originally been estimated at the Soviet Union times by the various state geological institutions. Currently, the old Soviet system is still used in Russia which requires all the reserves to be verified and approved by the relevant state authorities under the Russian Reserve Classification System. In addition, the reserve accounts are submitted to the State Authorities for further approval for statistical and tax purposes at the end of each production year. IMC reviewed a vast amount of information and data available to estimate the reserves which were based on the Companys future mine plans. All the available mine plans from the prospective mineable seams along with the geological information and chosen mining methodology were examined and estimations were made on this basis. The block methodology was used for the calculations by using the appropriate formulae taking into account the level of mining, thickness distribution, mining parameters, tectonic zones, outcrop positions, coal quality and the degree of investigations of technological parameters and recognition of the deposit grade boundaries. IMC has concluded that the resource and reserve estimates prepared by the mine staff are considered reasonable and reliable for the following reasons: Mine production to date has shown that the major coal seams are consistent and of reasonable quality and that the data used in the estimation of resources and reserves is of reasonable quality. Disruptions to the seam continuity (such as wash outs, oxidation zones and faults) are well defined and established. Through the years, the mine personnel has undertaken further exploration to increase the confidence level about the geological uncertainty where the data seem to be sparse; and also gained further information through the existing mine work. Resources and reserves estimated by the mine must be submitted to a government ministry periodically for review and approval. This independent verification increases the confidence in the resources and reserves estimated by the mine. The Russian system used to classify resources is somewhat more conservative than the international system. Mining recovery factors used in the estimation of industrial reserves (equivalent to Reserves) are based on previous experience gained in mining the deposit. These factors can be predicted reasonably accurately.

Reserves for each seam were directly estimated on the principles of JORC system by using available mine layouts for that seam, available thickness for mining including clastic bands and dilutions, ash content, seam specific gravity, seam structural continuity, borehole spacing, and as well as taking into account other factors such as structural complexity, faults, unstable roof and floor conditions, poor coal quality, previous working conditions and other geological factors. Table 2-3 below shows the Raspadskaya Resources and Reserves as at 31st December 2011. Table 2-3 Raspadskaya Resources and Reserves as at 31st December 2011 Mine Raspadskaya Underground Raspadskaya 2 Underground Raspadsky 4 Underground and Open Pit Raspadskaya 3 Mineral Resources Category Measured Indicated Total Measured Indicated Total Measured Indicated Total Measured '000t 594,167 594,167 254,941 254,941 107,743 107,743 180,404 Ore Reserves Category Proved Probable Total Proved Probable Total Proved Probable Total Proved '000t 60,590 342,455 403,045 97,586 116,363 213,949 13,784 80,102 93,886 13,187

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Mine Underground

Mineral Resources Category Indicated Total Inferred Measured Indicated Total Inferred '000t 180,404 119.596 1,137,255 0 1,137,255 119.596

Ore Reserves Category Probable Total Proved Probable Total '000t 137,520 150,707 185,147 676,440 861,587

Raspadskaya Total

2.4

Mining

Raspadskaya mine started production in 1973 with a design capacity of 7.7 Mtpa and is now the largest underground mine in Russia. However, production has been severely curtailed following the explosion in 2010 which is addressed in Section 1.8 above for Health and Safety. 2.4.1 Current Operations The mine is divided into mining blocks, each served by vertical shafts and with a coal conveying system via drifts to the surface. Each seam is separately accessed from the shafts. There are four vertical shafts, which are well serviced and are in good condition. Elements of the hoists are repaired and replaced in accordance with a schedule, which includes monitoring of rope wear and regular replacement of cages and suspension gear every seven years. No. 4 downcast shaft is currently being re-equipped following the explosion which destroyed the whole of the shaft furnishings and pit top area. The shaft is expected to be back service by September 2012 to provide ventilation and services for the next rehabilitation phase of the mine which has involved new: Mine fan Shaft headgear and heapstead building Winder overhaul Complete shaft furnishings

A new vertical shaft No. 6 is currently being prepared for sinking and will proceed once No. 4 shaft is back in service. The plan involves sinking the shaft to a depth of 580 m, to the -210 m level. The nature of the deposit means that seams must be extracted in descending order. This practice is well established and the workings in all seams are correctly staggered. There are however exceptions to this when the seams are deemed too thin and are not part of the reserves in balance. Current production is from one longwall retreat face in the 7-7a Seam where production is limited by mandate to 5,000 tpd or 35,000 tpw. The face is 215 m long and has with a set of Russian and Czech heavy duty equipment extracting 4.0 m as shown in Table 2-4 below. Table 2-4 Raspadskaya Mine Production Equipment Type Double Ended Ranging Drum 700 mm wide with 30 mm twin inboard Chain and 4 two speed 250 kW drives 700 mm wide 250 kW drive and 112 kW Crusher 4 leg chock shield with forward walkway and powered forepoles for thick seams High pressure pumps operating at 200 BAR 2 transformers and power centre switchgear Origin Russia Russia Russia Russia Czech Republic Czech Republic Number 1 1 1 144 4 1

Equipment Shearer AFC Stage Loader Powered Roof Supports Hydraulics Power

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This set of equipment has been in service for some time and IMC understand it is due to be replaced at the completion of the current panel with western equipment similar to other sets at the mine but currently out of service following the explosion. Face conditions observed during the IMC visit were good with the gate road stability at the face ends within the abutment zone excellent showing no signs of forward pressure whatsoever. Most development is carried out in seam using roadheaders or continuous miners. Panel development is undertaken as a twin entry system, greatly simplifying ventilation and coal transport as well as facilitating the drilling of methane drainage holes into the caved waste area behind the retreating face. All roadways are supported with full column resin bonded roofbolts 20 mm diameter and 2.2 m long with a density of 1 bolt per m2. In addition, cable bolt support is used where needed in junction areas in particular. All of the roadways observed during the IMC underground visit were in good and stable condition, even where faults were present. Coal clearance is by 1.2 m wide belt conveyor from the face at 2,000 tph via a truck conveyor system rated at 2,200 tph to the main bunker on the +70 m level. From this bunker coal is conveyed along: the eastern inclined shaft equipped with a 2LU-120B conveyor, 2,200 tph capacity at 2,000 kW; and the western inclined shaft equipped with a FSW-1400 conveyor, 2,200 tph capacity at 3,200 kW.

The coal is then delivered to the surface via a drift with a RFLK-1600 conveyor, 3,500 tph capacity to the Raspadskaya CPP open storage area. 2.4.2 Future Plans

Prior to the explosion the mine was operating with 5 longwall faces and produced 8.9 Mt in 2007. In 2011 the production was 1.25 Mt from a single face limited to 5,000 tpd until No.4 shaft is brought back into service in September 2012. The Company intends to recommence production from two more faces during 2012 and build back up production progressively to the 2007 levels. The long term strategy anticipates production building to a peak of 10.5 Mt in 2018, including coal from development workings. Mining operations will be conducted on five seams with one longwall face operating in each seam. The main constraint to achieving the proposed production will be the effectiveness of the ventilation and the control of methane. The current working Seam 7-7a has an in-situ methane content of 13 m3/t but the specific emission including seams above and below as they become distressed is likely to be much higher. There have been some significant changes implemented since the explosion in the control of methane. Only one longwall unit will be working in a seam at any one time. Longwall panels area now developed and worked with 34 m barrier pillar between them, thus isolating the worked out waste areas from each other. The panels are developed with twin gates enabling more effective methane drainage holes to be drilled into the distressed area over the caved waste from the twin gateroad. A comprehensive environmental monitoring system has been installed throughout the mine which is monitored in the surface control room.

IMC considers these changes to be positive in the control of methane and the increase in the drainage efficiency particularly as production increases. There are also some initiatives which will continue to be implemented and which IMC consider to be marginal in their effectiveness and are likely take to suction capacity away from where it is more effective. Pre drainage of the virgin areas around the developments Pre-drainage of the blocked out panels from the solid coal in front of the face.

The mine continues to be force ventilated by the surface fans and the waste are behind the face is positively ventilated by a bleeder road and an exhaust fan. Whilst forcing ventilation is widely practiced in Russia it is not accepted as international best practice. IMC also would question the use of bleeder roadways for gas control in the waste area behind the face which is not accepted internationally. However, IMC considers that the changes above should allow the mine to achieve their forward production plans which are not significantly higher than has already been achieved in the past.

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2.5.1 Access The Raspadskaya complex is located in the south-east of the Kuzbass, in the Tomusinsky district of Kemerovo region. The closest human settlement is the town of Mezhdurechensk with the population of 105,700 people. The main transport arteries are the Abakan to Novokuznetsk railway and the Novokuznetsk to Mezhdurechensk highway. The mine is linked to the town of Mezhdurechensk by the railway and motor road both of which are Class 1 standard. The closest large airport is at Novokuznetsk which supports scheduled domestic flights to Moscow. Telecommunications are excellent at the mine site with land lines and full mobile coverage. There are mobile phone transmitters underground on the main levels allowing cellular coverage throughout the main areas of the mine. 2.5.2 Electrical Power At present the mine is supplied with electric power from the Mezhdurechenskaya 220/110/35 kV substation through double 110 kV overhead lines 17 km long. Two substations, Raspadskaya 1, 110/6 kV and Raspadskaya 2, 110/35/6 kV distribute electricity to the main industrial site at Block 4 mine shaft and the coal processing facility. They are equipped with two transformers, each with a 25 MVA capacity. There is a 35/6 kV secondary Glukhaya substation at No.4 Mine shaft, with 2 x 10 MVA transformers, supplied by two 35 kV overhead lines from the Raspadskaya 2 substation. A completely new power supply system is being installed which is fed by two 110 kV transmission lines directly from a hydro-electric power station 40 km away. A new primary substation is currently being built adjacent to the No. 6 shaft development site which has 2 x 40 MVA transformers to supply at 110/6.3/6.6 kV and will provide a direct power supply to all of the Raspadskaya complex operations. This system will be completed and commissioned in 2012 with the new supplies to each operation phased in by September 2012. 2.5.3 Water Supply The water supply is provided by a series of wells, boreholes and the Olzheras River. The mine pumping facilities are designed for handling the maximum water inflows of 3,400 m3/hr. The capacity of the existing pumping systems is adequate to cope with these water inflows in the peak periods of surface floods and snow melt. 2.5.4 Drainage The inflow of mine water to the existing +70 m level is normally 1,200 m3/h, with an annual maximum of 3,500 m3/h. Although these rates of water inflow are high but given the size of the mine can be considered acceptable. In addition, mining is at a relatively shallow depth so that the costs of pumping are moderate. Water is pumped from the +70 m level by four CNS 850-360 pumps and three 14UV-6 coal pumps. Drainage under construction on the -210 m level will be equipped with twelve CNS 500 x 650 pumps. The expected water inflow on the 210 m level is: in dry periods, 1,600 m3/h. during floods, 3,600 m3/h.

The design capacity of the mine drainage system is for a maximum inflow of 3,400 m3/h. Water from sumps is removed to treatment plants and then discharged into the River Olzheras. The capacity of the existing drainage system is sufficient to control the maximum inflow in periods of flood and snow melting. 2.5.5 Ventilation

All shafts, except the Block 3 shaft, are used as air intakes for forced ventilation. Each shaft has a fan with a design capacity of 415 m3/s. Currently, the mine fans provide all ventilation totalling 917 m3/s. IMC understand that there is a programme of shaft sinking and ventilation fan upgrading to ensure the mine is adequately ventilated as the mine expands both production and its geographical sizes with its forward plans. Whilst forcing ventilation is widely practiced in Russia it is not accepted as international best practice. 2.5.6 Compressors

There is a Shtorm 4200 surface compressor station which supplies the mine.

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The Raspadskaya mine has a number to workshops where general service and maintenance of all underground equipment are undertaken. The workshops are well equipped and can do most of the repairs required, with the exception of complex specialized work. These workshop facilities are well equipped and the mine is capable of undertaking all but highly specialised repairs. There are a number Mining machinery manufacturers which work with the mine in the planned preventative maintenance of the equipment that they have provided. 2.5.8 Explosives

The Company is licensed for the storage and use of industrial blasting materials for blasting operations in underground workings and on the surface in gas hazardous or extract dust explosion hazardous seams. 2.6 Projects and Prospects

There are no stand-alone mining projects specific to Raspadskaya mine other than the overall mine development programme which is extensive and the cost have been incorporated into the capital expenditure of the Companys financial model. 2.7 Environmental Issues

2.7.1 Environmental and Social Status In administrative terms, the mine is located within the Mezhdurechensk municipality, Mezhdurechensk district. The nearest residential area is the village of Olzheras situated 500 m south of the mines motor vehicle site and which adjoins the mining allotment. The land allotment of the mine area covers 4,027 ha, including 3,289 ha of undisturbed land, on the right bank of the Usa River. The land overlying the deposit is covered with the taiga forest. The main surface facilities include the sites of shafts and drifts, the coal preparation and loading facilities, the office building, repair workshops, boiler house, coal stockpile, mine and domestic waste water treatment facilities. 2.7.2 Permitting and Compliance With the exception of permission for use of a water body, the Company holds all of the necessary environmental permits, the details of which are given in Table 2-5 below. The decision on provision of the water body for use is presently being formalised. The mine water treatment facilities are classed as declarable waterworks and therefore require various permits and plans, including: permit for operation; safety declaration; emergency response plans; design documents; operating instruction; and safety monitoring documents. Raspadskaya Environmental Permits Document Permit for emission of polluting (harmful) substances into the air Emission threshold limit estimates Licence for collection, utilisation, neutralisation, transportation and disposal of Number and date of issue/approval No. 4/atmMezh of 30 December 2011 No. 14-5/3769 24.12.2010 No. -68-000578 (42) of 13 August 2007 Federal Agency for Environmental, Technological and Nuclear Supervision Issued/approved by Federal Agency for Supervision over Natural Resource (Rosprirodnadzor) Valid until 23 December 2015 23 December 2015 13 August 2012

Table 2-5

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Document waste of hazard classes 1-4 Waste generation standards and waste disposal limits

Number and date of issue/approval No. 5/othMezh of 10.02.2011 No. 7/1 voda/Mezhd of 23.04.2010; No. 7/2 voda/Mezhd of 23.04.2010; No. 7/4 voda/Mezhd of 23.04.2010; No. 7/5 voda/Mezhd of 23.04.2010; No. 7/6 voda/Mezhd of 23.04.2010 Olzheras river: No. -36/1-2677-09; No. -36/2-267709; No. -19/52677-09; No. 19/6-2677-09 Glukhaya river: No. -19/4-2677-09 No. 00490 BRDVH of 25 December 2006; No. 00491 BRDVH of 25 December 2006; No. 00468 BRDIO of 15 November 2006 28.12.2011

Issued/approved by (Rostechnadzor) Federal Agency for Supervision over Natural Resource (Rosprirodnadzor)

Valid until

13 August 2012 28.02.2014

Permit for discharge of polluting substances into water bodies

South Siberian Department of the Federal Agency for Environmental, Technological and Nuclear Supervision (Rostechnadzor)

28.02.2014 01.01.2014 01.01.2014 01.01.2014 28.02.2014

Discharge threshold limit estimates

South Siberian Department of the Federal Agency for Environmental, Technological and Nuclear Supervision (Rostechnadzor)

28.02.2014 01.01.2014 01.01.2014

Permit (licence) for water body use

Upper Ob River Basin Water Management Agency

01.12.2011 (being reissued)

Contract for water use

Upper Ob River Basin Water Management Agency

30 September 2016

The Company is in compliance with the general conditions of these permits and with the specified limits for air emissions and waste materials. However, the threshold limits for some parameters are exceeded in the waste water discharge and therefore higher rate environmental charges are incurred. 2.7.3 Potential Impacts and Control Measures 2.7.3.1 Air Emissions The major sources of air pollution include the ventilation air of the underground mine workings, the coal fired boiler house, motor transport department, repair workshops and waste rock bunkers. The methane concentration in the return air flow is in the range 0.1 to 3.5%, which in 2011 amounted to 15,800 t of methane emitted to atmosphere. It is not possible to utilise the methane at the mine due to technical difficulties relating to poor release from coal seams and the irregular concentration. Control measures in place for minimising dust emissions are: boiler flue gas abatement systems with a design dust capture efficiency of 86%; water spraying of roadways during dry periods in summer. According to recent ambient air quality measurements, the threshold limit values are not exceeded at the boundary of the sanitary protective zone. 2.7.3.2 Water Use and Discharge The major water supply sources at OAO Raspadskaya are underground boreholes and the Olzheras river.

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Domestic waste water is treated using facilities on the mine site which also receives domestic waste waters from other operating sites of Raspadskaya Coal Company and the Kuzbasskaya Coal Preparation Plant, which is owned by Yuzhny Kuzbass. The water make at the mine is 3.15 million m3/yr, which is treated in a settling pond located in the Granichny brook valley. In addition to mine water from Raspadskaya, the facilities also receive and treat mine water from MUK 96 and Raspadskaya Koksovaya, as well as production waste water. Approximately 65% of the treated water is delivered to the water supply systems of Raspadskaya Coal Preparation Plant (CPP) and Raspadskaya mine. The remaining water is discharged into the Olzheras river. At present, the treatment facilities do not have the capability of treating waste water to the permitted standard values and as a result higher rate payments are incurred for over-limit discharge of polluting substances. IMC was informed that design studies are in progress for the construction of new treatment facilities to eliminate this problem. 2.7.3.3 Solid Waste A high proportion of the solid waste is rock produced during the mine development is stored on a 45.9 ha site at the mine. Other wastes include, water treatment residues (except those for mine water treatment), boiler house ashes and slurry from boiler house dust control systems. These wastes are deposited in layers separated by the inert waste rock materials. Other non-production waste materials are handed over to the special organisations for utilisation or disposal. 2.7.4 Environmental Management At Raspadskaya the environmental department includes the Deputy Chief Engineer plus 4 specialists reporting to the Department of Labour and Environmental Safety of Raspadskaya Coal Company and the Chief Engineer of Raspadskaya. In addition, the Deputy Chief Engineer for Environmental Issues manages the environmental analytical laboratory with a complement of 11 staff, and the water treatment facility which employs 84 people. Raspadskaya has its own accredited laboratory, Certificate No. 18/10 of 10.06.2010, valid until 10.06.2013. Monitoring is arranged in compliance with the approved programme which includes ambient air quality, emission sources, waste waters and the receiving water bodies, soil and long term waste storage facilities. 2.7.5 Rehabilitation 2.7.5.1 Progressive Rehabilitation There are no progressive rehabilitation targets at Raspadskaya. In the course of underground coal mining, the surface deformation manifests itself as smooth lowering without caving and fracturing and no remedial work is necessary. 2.7.5.2 Closure Rehabilitation It is planned to complete mining operations at Raspadskaya mine in 2018. Hence, there are no detailed plans for disturbed land rehabilitation. However, the rehabilitation costs are estimated regularly within the framework of the annual JORC reserves and resources valuation. According to the latest estimates, the cost of rehabilitation of the land disturbed in the course of Raspadskaya operations is RuR 210 M. The priority rehabilitation target is the waste disposal site with an area of 45 ha and estimated rehabilitation cost of RuR 22.5 M. 2.7.6 Summary of Potential Risks and Liabilities The Company holds all of the necessary environmental permits except for permission to discharge treated effluent to a water body. This is presently undergoing a period of approval by the authorities and expected to be issued in the near future. At present the Company does not comply with standards for suspended solids, oil products, chlorides and phenol in the discharge of treated water due to inefficient operation of the waste water treatment facilities. As a result the payments for threshold limit excess are made at higher over-limit rates. IMC understand that the Company plans to construct new treatment facilities and the design studies are in progress.

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MEZHDURECHENSKAYA UGOLNAYA KOMPANIA (MUK) 96 UNDERGROUND MINE

Maps and Plans MUK 96 Underground Mine Seam 15

3.1 Plate 3

IMC visited all of the operations in January 2012. 3.2 Geology

3.2.1 Regional Geology The regional geology is the same as described in Section 2.2.1 above. 3.2.2 MUK 96 Geology The mining area is defined by the limits of the two existing mine licenses. The south or Main license covers a small area of 5.6 km2 and the north or Mine Raspadskaya 2 Upper license covers an area of 25.41 km2. 3.2.2.1 Tectonic Structure The tectonic structure of the mine is simple. In general the coal bearing sediments form seams within a monocline with a north-westerly dip angles of 6-12. This monocline structure is complicated by small folded undulations and by disjunctive faults. Small amplitude faulting is found throughout all seams in the mining area. The majority of the faults are low angle thrust faults varying from 0.15 to 30 m in throw. The remainder of the faults are normal faults with 0.7 to 12.5 m throws and high angle reverse faults varying from 0.5 to 5.0 m. The main trend of this faulting is relatively consistent across the area running virtually north south. A second trend running north-west to south-east is also seen but faults along this direction are rare. 3.2.2.2 Stratigraphy The coal seams that are present at the Raspadskaya Mine occur in the same sequences over approximately 600 m. However, at MUK 96 it is only the Yerunakovskaya sub-series (P2er) that is of interest as this subseries contain the upper sequence of seams that are licensed. The Yerunakovskaya sub-series (P2er) is represented by the Leninskaya suite. The lower contact of the Leninskaya suit is roof of seam 7-7a and the upper contact is the roof of Seam 19. These suites are mainly sandstone with layers of conglomerates, siltstones, and coal. Only seams 15 to 19 are of workable the main license area. However in the license extension area seams 11 to 19 are targeted for mining. As with the Raspadskaya mine area, overlying the Permian seams are Jurassic sediments consisting of conglomerates and sandstones. These sediments rest unconformably on the Permian and are seen to cut through the seam sequences. Where Jurassic seams are present, pillars are left to prevent groundwater flowing into the mine. 3.2.2.3 Coal Seams and Quality The structure of the deposit is simple and each of the seams of interest is continuous where the geological correlation of seams is well established. The seams are uniformly spaced with approximately 50 to 60 m of competent strata between working seams consisting of siltstones and sandstone between seams 15, 17 and 19. However over the license extension area additional seams have been made available to the mine. These are Seam 11, Seam 12, Seam 13, and Seam 14. Excluded from mining are Seams 13, 16, 16, 18-lower leaf, 18-middle leaf, and 18-upper leaf, as they are very variable in thickness and often thin out entirely. Of note should be that Seam 19 in the north-eastern part of the site is partly worked out by the Olzherassky open pit where washouts affected Seam 19. The rocks surrounding the coal are in general medium strength sandstones and siltstones. The strata are relatively consistent, although some of the sandstones have an irregular erosion contact with the siltstones. The interburden rocks are easily caved and thus are highly suited to longwall mining. However, the sandstones are

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porous and permit water inflow to the mine. This hazard decreases with depth of cover and is not expected to be a major issue. The nature of the deposit means that seams must be extracted in descending order. This is the situation with regard to seams 11 and 15 which are the first two seams planned to be worked. The mine has been operating for about 12 years and is still working the first seam, Seam 15 where there is a high degree of confidence regarding coal quality. These coals are in the same sub-series as those from Raspadskaya mine except they are the seams higher in the same sequence. The coal is low sulphur, low phosphorus and has a low inherent ash. Quality varies slightly between seams, but all seams meet the market requirements for this type of coal. Coal is referred to Grade and can be used in the coking process. The main quality parameters for each of the currently working seams are indicated in Table 3-1 below. Table 3-1 Seam Grade 19 17 15 13 12 11 Coal Quality Moisture % 0.37-3.17 2.05 (54) 0.96-3.46 1.92 (90) 0.53-2.95 1.81 (106) 0.41-3.67 1.68 (126) 0.78-3.46 1.69 (107) 0.10-3.42 1.71 (135) Clean Coal Ash % 5.2-14.6 9.1 (55) 4.7-15.7 8.3 (90) 4.3-14.3 7.8 (107) 4.9-19.7 9.5 (126) 4.2-18.9 8.4 (107) 3.7-18.6 8.2 (135) ROM Ash Volatile Matter % % 6.8-22.2 13.2 (51) 7.0-20.4 12.8 (55) 9.6-29.9 16.4 (99) 8.7-32.4 16.5 (106) 9.2-30.9 16.4 (91) 5.9-26.9 13.3 (112) 33.2-39.3 35.7 (55) 33.2-38.6 35.4 (90) 30.8-38.9 34.3 (107) 27.7-37.8 33.1 (126) 30.0-39.6 34.8 (107) 30.7-38.8 34.5 (135) Plasticity mm 8-12 10 (55) 9-14 10 (90) 9-14 11 (107) 8-14 10 (126) 9-15 11 (107) 8-17 11 (135) Sulphur % 0.14-0.37 0.25 (9) 0.00-0.38 0.20 (6) 0.18-0.33 0.28 (9) 0.22-0.38 0.30 (10) 0.11-0.68 0.34 (7) 0.24-0.41 0.32 (9) Phosphorus % 0.0107-0.079 0.036 (10) 0.0100-0.040 0.022 (9) 0.0020-0.170 0.025 (11) 0.0007-0.047 0.019 (10) 0.0680-0.260 0.063 (10) 0.0170-0.048 0.180 (8)

3.2.2.4 Other Geological Considerations Gas The methane content of the coal seam grows consistently with the stratigraphic depth. There are a number coal seams within the deposit which are thick and have high in-situ gas contents in the order of 25 m3/t. These gas horizons will interact during multi-seam working and composite emissions should be considered in the mine layout and production sequencing. Spontaneous Combustion Coals of all seams within the mine field are prone to spontaneous combustion, some having short incubation periods. 3.3 Reserves and Resources

The purpose of the valuation process is to confirm the reasonableness of MUK 96 reserve and resource estimates and to establish that the reserve base is sufficient to enable the Companys production plan to be achieved. The reserves and resources are stated in accordance with international standards. 3.3.1 Nature of Evidence 3.3.1.1 Exploration Geological exploration has been originally undertaken in the 1950s. To obtain additional data and to confirm the geological data interpretation, the districts were additionally explored during the last 25 years. In early 1950s only 18 drillholes were drilled in the district. Most of those drillholes intersected seam 15 and only one drillhole intersected overlying seam 19.

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Exploration of the district under review was resumed in early 1970s when new drillholes were drilled in the North, in the adjoining Raspadskaya 2 mine area. Later 117 drillholes were drilled to intersect the overlying seams. Currently the total number of drillholes is 147 in Gorny district (26.6 drillholes per km2) and 397 drillholes in Raspadskaya 2 upper (13.2 drillholes per km2). 3.3.1.2 Borehole Data Diamond core drilling system was used for all drillholes. The drillholes were drilled at spacing of 300 m between drillholes and 300 m between survey lines to a depth from 200 to 700 m. Based on drilling results, detailed maps and cross-sections were prepared. The main distinction between geological data of MUK-96 Gorny district and Raspadskaya mine is that the major part of geological data of the MUK district dates back to a later exploration period and is thought as more reliable. Additionally, hole logging took place and samples were taken for geotechnical analyses to predict mining conditions. Also, hydrogeological investigations were carried out in some drillholes. Geophysical logging, including density gamma-gamma logging, gamma logging and SP logging, was carried out in all drillholes to control core drilling results and determine the seam thickness. 3.3.1.3 Sampling and Assay Data Core was sent to an independent laboratory (Central Analytical Coal Laboratory) where standard analyses for calorific value, ash, volatiles, plastimetry and partly for sulphur and phosphorus were made. Analyses of samples taken in seam intersection areas in underground development headings and production faces were used for reserve and resource estimates. Every single sample was cut vertically along the seam thickness and a separate sample was taken in waste parting and in seam leaves. On average, the waste and coal plies samples to the full seam thickness samples ratio was 1/10. Resource and mined tonnages were reconciled on a regular basis. Production forecast was based on samples taken in development headings; the actual parameters were based on samples from operating production faces. 3.3.1.4 Survey Data Results of exploration drilling are shown in detail on maps and cross-sections. 3.3.1.5 Geological Modelling Computer modeling and reserve estimation methods are not used by the mine geologists, since there is no electronic data base of the deposit. Reserve estimates are undertaken manually. 3.3.2 Modifying Factors To evaluate the resources under JORC certain criteria must be in place to demonstrate that these resources are economic and meet the modifying factors. A costed business and mining plan that covers the mining areas until the year 2032 or whatever the cessation date before 2032; Production plans with mining layouts are available for the target seams with appropriate mining parameters and IMC have only assessed those tonnages that are shown in the current business plan as reserves; Evaluation of the reserve has only been done for the period of the mining plan as it is determined that these are demonstrated as being economic; It is assumed that proved reserves will be worked first in the course of depletion and that the balance of the plan if required will then come from the probable reserve if any; and

If the mine license expires before the business plan end-date, it is assumed that there is a reasonable expectation that the license will be renewed by the authorities. 3.3.3 Verification Resource and mined tonnages are reconciled on a regular basis by the Company. Production forecast are based on samples taken in development headings; the actual parameters were based on samples from operating production faces. Randomly selected geological areas, where the original resource estimations and resource categories were assigned, were compared against the estimated figures by IMC and the results were generally found reasonably comparable to each other. IMC saw no reasons in the estimations to assume these were not correct and is of the opinion that this is reasonable and that the methods used to calculate the tonnages are valid. In addition to the

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random borehole records checks, the schedule plans were re-checked. Therefore it was concluded that the seam thickness and the coal density used to calculate tonnages are considered reasonable and compare well with the raw data. 3.3.4 Losses and Dilution The reported recoverable tonnages have taken into account geological and mining losses in the planned exploitation of the blocks based on operational records and the forward plans as shown in Table 3-2 below. Table 3-2 MUK 96 Losses and Dilution Mine Gorny District Underground Gorny district Open Pit Raspadskaya 2 upper Underground Raspadskaya 2 upper Open Pit License KEM 00635 TE KEM 00635 TE KEM 13024 TE KEM 13024 TE Losses and Dilution % 26.91 16.00 36.37 16.00

3.3.5 Reserves and Resources Statement The reserves and resources have originally been estimated at the Soviet Union times by the various state geological institutions. Currently, the old Soviet system is still used in Russia which requires all the reserves to be verified and approved by the relevant state authorities under the Russian Reserve Classification System. In addition, the reserve accounts are submitted to the State Authorities for further approval for statistical and tax purposes at the end of each production year. IMC reviewed a vast amount of information and data available to estimate the reserves which were based on the Companys future mine plans. All the available mine plans from the prospective mineable seams along with the geological information and chosen mining methodology were examined and estimations were made on this basis. The block methodology was used for the calculations by using the appropriate formulae taking into account the level of mining, thickness distribution, mining parameters, tectonic zones, outcrop positions, coal quality and the degree of investigations of technological parameters and recognition of the deposit grade boundaries. IMC has concluded that the resource and reserve estimates prepared by the mine staff are considered reasonable and reliable for the following reasons: Mine production to date has shown that the major coal seams are consistent and of reasonable quality and that the data used in the estimation of resources and reserves is of reasonable quality. Disruptions to the seam continuity (such as wash outs, oxidation zones and faults) are well defined and established. Through the years, the mine personnel has undertaken further exploration to increase the confidence level about the geological uncertainty where the data seem to be sparse; and also gained further information through the existing mine work. Resources and reserves estimated by the mine must be submitted to a government ministry periodically for review and approval. This independent verification increases the confidence in the resources and reserves estimated by the mine. The Russian system used to classify resources is somewhat more conservative than the international system. Mining recovery factors used in the estimation of industrial reserves (equivalent to Reserves) are based on previous experience gained in mining the deposit. These factors can be predicted reasonably accurately.

Reserves for each seam were directly estimated on the principles of JORC system by using available mine layouts for that seam, available thickness for mining including clastic bands and dilutions, ash content, seam specific gravity, seam structural continuity, borehole spacing, and as well as taking into account other factors such as structural complexity, faults, unstable roof and floor conditions, poor coal quality, previous working conditions and other geological factors. Table 3-3 below shows the MUK 96 Resources and Reserves as at 31st December 2011.

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Competent Persons Report on Mining Assets Russia MUK 96 Resources and Reserves as at 31st December 2011 Mineral Resources Mine Category Gorny District Underground and Open Pit Measured Indicated Total Raspadskaya 2 Upper Underground and Open Pit Measured Indicated Total MUK 96 Total Measured Indicated Total 288,260 302,363 0 302,363 14,103 288,260 '000t 14,103 Category Proved Probable Total Proved Probable Total Proved Probable Total 11,195 11,195 60,620 124,781 185,401 60,620 135,976 196,596 '000t Ore Reserves

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Table 3-3

3.4

Mining

The OAO Mezhdurechenskaya Coal Company-96 was established in 1996 as a private company to mine and sell grade (gas fat semi-lean) coal. The mine is located at the eastern part of the Raspadskoye deposit and has been developed to work the upper seams, Seams 11-19. 3.4.1 Current Operations The mine is currently working Seam 15 which is accessed via two adits from the surface outcrop working progressively down the dip. IMC understand that two surface drifts are to be driven to access the lower areas of Seam 15 and the underlying seams starting in 2013. Man and material transport uses roof mounted diesel powered monorails, which is effective but slow. Some of the roadway cross sections are large and the manriding monorails are high up and have to be accessed by ladder. The interburden rocks are easily caved and thus are highly suited to longwall mining. However, the sandstones are porous and permit water inflow to the mine. This hazard decreases with depth of cover and is not expected to be a major problem. Current production is from one longwall retreat face in the Seam 15 working along the strike with the face on full dip, producing 2 Mtpa. The face is 215 m long and has with a set of western heavy duty equipment extracting 3.53 m as shown in Table 3-4 below. Table 3-4 MUK 96 Production Equipment Type Joy 4LS 20 Double Ended Ranging Drum Anzhera-34 800 mm wide with 30 mm twin inboard chain and two speed drives Anzhera 800 mm wide 250 kW drive and Crusher MKT 2 leg chock shield with forward walkway and powered forepoles for thick seams High pressure pumps operating at 200 BAR 2 transformers and power centre switchgear Origin UK Russia Russia China Czech Republic Czech Republic Number 1 1 1 144 4 1

Equipment Shearer AFC Stage Loader Powered Roof Supports Hydraulics Power

Face conditions observed during the IMC visit were good with the gate road stability at the face ends within the abutment zone excellent showing no signs of forward pressure whatsoever.

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Most development is carried out in seam using roadheaders or bolter miners. Panel development is undertaken as a twin entry system, greatly simplifying ventilation and coal transport as well as facilitating the drilling of methane drainage holes into the caved waste area behind the retreating face. There are five development teams equipped with four JOY 12CM32 bolter miners and one Ukrainian KSP 32 roadheader. The bolter miners are state of the art development machines ideally suited to the benign conditions at MUK 96. In order to replace the production units, the annual development should be increased from the current 5,055 m up to 15,380 m. This requires an average development rate of 153 m per month per heading. The 12CM32 bolter miners have already reached this level and are able to maintain such rate. All roadways are supported with full column resin bonded roofbolts 20 mm diameter and 2.2 m long with a density of 1 bolt per m2. All of the roadways observed during the IMC underground visit were in good and stable condition, even where faults were present. The gas content of the in-situ coal in Seam 15 is 10 m3/t but the emissions are limited at the moment due to the depth and current production rates. Methane is pre-drained in developments and from the blocked out panels from the solid coal in front of the face with marginal effect as IMC would expect. Methane is also drained from boreholes drilled into the distressed area over the caved waste from the adjacent twin gateroad, where the drainage efficiency is 30 to 40%. IMC consider the methane emission to be under control with the current production levels but understand that production is to be increased significantly so methane management will be a key issue. Seam 15 is also prone to spontaneous combustion but this is understood by the mine management and IMC consider that adequate precautions are being taken to keep the situation under control. However, forcing ventilation is likely to exacerbate potential problem. Coal from the longwall face and development headings is delivered to the surface by conveyors. The face gate is equipped with a 3LT-1200 conveyor with a capacity of 1,500 t/h which feeds onto the truck belt system and out of the mine on conveyors of similar capacity. Once on the surface the coal goes to an adit mouth stockpile with the capacity of 20,000 t with a PKR-01 radial stacker conveyor. Coal is reclaimed from the stockpile with an Anzhera 30 armoured conveyor into the truck loading facility. Coal is then transported to the Raspadskaya CPP by 30 t BelAZ 7540 trucks. 3.4.2 Future Plans

The medium term production strategy is focused on a single longwall face in the current Seam 15. Starting in 2013 mining at Seam 11 will commence production with a second longwall face. According to the plan, this is anticipated to produce and additional 900 to 1,500 ktpa The mine total production capacity, (including the coal from the developing longwall faces) is anticipated therefore to increase to approximately 3.0 Mtpa. In the long term, upon the completion of Seam 15 extraction operations will be moved to overlying Seams 17 and 19. To support this production increase in 2014 two surface drifts are planned for construction (Transport Drift No. 5f-15, ventilation Drift No. 5a-15) with portals adjacent to the Raspadskaya No. 4 substation. The development of Seam 15 requires four separate electrical feeders (two at 6 kV and two at 6.3 kV) fed from the new Raspadskaya 6 substation, which are to be put into operation in 2012. IMC considers these expansion plans to be achievable with proposed mine and infrastructure developments. 3.5 Infrastructure

3.5.1 Access MUK 96 is situated with the Raspadskaya complex and has the same road, rail, air and telecommunication services as described above in Section 2.5.1 for Raspadskaya mine 3.5.2 Electrical Power Currently the central power distribution Seam 15 substation is supply by twin 1050 m cables at 6 kV line from the central substation at Block No 5. In turn, this substation is supplied via a 6 kV overhead line from the Raspadskaya II substation. However, the mine will be supplied from the new power system being established at No. 6 shaft site as described above in Section 2.5.2. 3.5.3 Water Supply

The water supply is from the Olzheras River and processed mine water from Raspadskaya. Water is delivered by K-90/85 pumps, located on the bank of the River through a 100 mm diameter pipe to the boiler house and fire fighting tanks.

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Potable water is imported. There is no mains domestic sewer system and boiler effluents are discharged into the cesspool and storm water runoffs are drained into three sewage tanks. 3.5.4 Drainage Water from mine is treated then discharged into the River Olzheras. The capacity of the existing drainage system is sufficient to control the maximum inflow in periods of flood and snow melting. 3.5.5 Ventilation

The mine employs forcing ventilation, air is delivered in to the mine roadways from the 5-15 No 2 inclined ventilation shaft and splits into two directions along. The main ventilation drift; and The manriding drift, ventilation connection 5-15, ventilation adit 5-15 and, conveyor inclined shaft 515.

Return air passes along the conveyor, ventilation and main adits to the surface. Whilst forcing ventilation is widely practiced in Russia it is not accepted as international best practice. The VDK main fan consists of two independent two-stage sets of equipment, a VDK-8-No30 fan with 2 electric motors of 710 kW each, at 6 kV and 750 rpm, one set in operation the other on standby. During the winter period the air delivered to the mine is heated by the KSk4-12-02 fan heater with the capacity 15,000 m3/min, which works together with the main fan unit. 3.5.6 3.5.7 Compressors Mine Workshops

There is a Shtorm 4200 surface compressor station which supplies the mine.

The mine has limited capacity for the equipment and the majority of the machinery repair and maintenance requirements are fulfilled by the Raspadskaya mine workshops. 3.5.8 Explosives

The Company is licensed for the storage and use of industrial blasting materials for blasting operations in underground workings and on the surface in gas hazardous or extract dust explosion hazardous seams. 3.6 Projects and Prospects

There are no stand-alone mining projects specific to MUK 96 other than the overall mine development programme described above, which is extensive and the cost have been incorporated into the capital expenditure of the Companys financial model. 3.7 Environmental Issues

3.7.1 Environmental and Social Status MUK 96 is an underground mining operation exploiting the Olzherasskoye coal deposit. The nearest village, Raspadsky, is 5 km from the south-western boundary of the mine site. The operating sites of MUK 96 comprise: the production facilities situated north of and adjoining the Kuzbasskaya CPP site; the auxiliary production site on the right bank of the Southern Olzheras river, 0.8 km north-east of the main production site; the ventilation site located 1.2 km north-west from the auxiliary site; and

the main adit situated 2 km north-east of the main site, adjacent to the Raspadskaya facilities. 3.7.2 Permitting and Compliance The Company holds all of the required environmental permits, details of which are summarised Table 3-5 below.

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Table 3-5

MUK 96 Environmental Permits Document Number and date of issue/approval No. 17 atmMezh of 02.09.2010 Issued/approved by Federal Agency for Environmental, Technological and Nuclear Supervision (Rostechnadzor) Federal Agency for Environmental, Technological and Nuclear Supervision (Rostechnadzor) Federal Agency for Environmental, Technological and Nuclear Supervision (Rostechnadzor) Federal Agency for Environmental, Technological and Nuclear Supervision (Rostechnadzor) Valid until 31 December 2014

Permit for emission of polluting (harmful) substances into the air

Emission threshold limit estimates Licence for collection, utilisation, neutralisation, transportation and disposal of waste of hazard classes 1-4 Waste generation standards and waste disposal limits

2010

31 December 2014

No. -68-000806 (42) of 11.03.2008

11 March 2013

No. 13/ othMezh of 01.01.2008

01 January 2013

The Company is in compliance with the general conditions of the permits and the specified limits for air emissions and waste. 3.7.3 Potential Impacts and Control Measures 3.7.3.1 Air Emissions The major sources of emissions to air are the mine workings, coal fired boiler houses, open coal stockpiles, repair facilities and the methane degassing facility. Emissions are primarily methane, dust and the gaseous products of coal combustion. The total amount of methane emitted by the mine in 2011 was 13,329 t, which is approximately 50% of the limit set by the emissions permit. Cyclone type dust control equipment, with a typical capture efficiency of 86%, is installed in the boiler house flue gas system. Air quality monitoring results indicate that the threshold limit values are exceeded occasionally at the sanitary protection zone boundary with regard to dust and nitrogen dioxide. 3.7.3.2 Water Use and Discharge The sources of water supply for the company are the water intake on the Southern Olzheras river and treated mine water from the treatment facilities of Raspadskaya. Domestic and mine waste waters are treated at the facilities of Raspadskaya. There is no discharge of waste waters from MUK 96 into surface water bodies. 3.7.3.3 Solid Waste The mine does not have permanent waste storage facilities. All waste is handed over to special organisations for utilisation or disposal. 3.7.4 Environmental Management The environmental department of MUK 96 consists of 1 specialist who reports to the Department of Labour and Environmental Safety of Raspadskaya Coal Company and the Chief Engineer of MUK 96. Environmental monitoring is arranged in compliance with the approved programme and includes: monitoring of sources of air emission; ambient air quality at the sanitary protective zone boundary; soil monitoring; monitoring of the water supply sources.

Analyses of the monitoring samples are conducted in certified third party laboratories.

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3.7.5.1 Progressive Rehabilitation There are no progressive rehabilitation targets at MUK 96. In the course of underground coal mining, the surface deformation manifests itself as a smooth lowering without caving and fracturing and remediation is not required. 3.7.5.2 Closure Rehabilitation It is planned to complete mining operations at MUK 96 mine in 2017. Hence, there are no detailed plans of disturbed land rehabilitation. However, the rehabilitation costs are estimated regularly, within the framework of the annual JORC reserves and resources valuation. According to the latest estimates, the cost of rehabilitation of the land disturbed in the course of MUK 96 operation is RuR 17.7 M. 3.7.6 Summary of Potential Risks and Liabilities The Company holds the necessary environmental permits and all have valid dates. MUK 96 operations have a low potential for environmental impact due to the relatively small quantity of emissions and the fact that there is no direct discharge of water. Although the air quality limits for dust and NO2 at the boundary of the sanitary protection zone have been exceeded occasionally, in IMCs opinion the temporary higher levels are not sufficient to be considered a potential risk. Since all waste waters are treated at Raspadskaya facilities, the potential risks are related to the inefficient treatment system and lack of permit for the use of a water body at Raspadskaya.

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4
4.1

RASPADSKAYA KOKSOVAYA UNDERGROUND MINE

Maps and Plans Raspadskaya Koksovaya Underground Mine Seam 6

Plate 4

IMC visited all of the operations in January 2012. 4.2 Geology

4.2.1 Regional Geology The regional geology is the same as described in Section 2.2.1 above. 4.2.2 Raspadskaya Koksovaya Geology The Raspadskaya Koksovaya deposit is contained within the Kemerovskaya measures of the Olzherassky Coal Deposit, the upper boundary of which is located at the roof of Seam I and the lower boundary is taken at the floor of Seam XVII. These Measures are divided into two groups: the Upper Group characterised by thick coal seams, III, IV, and VI, and the Lower Group characterised by fairly thin seams, with the exclusion of the thick seam, Seam VIIII. 4.2.2.1 Tectonic Structure The Upper Group of coal seams occurs among thick strata of sandstones that include conglomerates. However the immediate roof and floor of the seams are composed of siltstones and carbonaceous mudstones. The Lower Group of coal seams occurs principally in clay type (mudstones, carbonaceous mudstones, and fine grained carbonaceous siltstones) sequence. The whole sequence contains 17 coal seams with aggregated thickness of 42m. With an average overall sequence thickness of 267m, the workable coal amounts to 15.5% of the total. The Olzherassky Coal Deposit is shown to have a uniform tectonic structure. The general north-east strike and north-west dip of the strata is complicated by four gently dipping flexure folds that are directed diagonally to the strike of the monocline with the principal fold axis direction having an azimuth of 5-10. However, only the steadily dipping limb of the Olzherassky Fold is seen at the Koksovaya site. The main type of disjunctive tectonics at the Olzherassky deposit are represented by sub-meridian faulting dipping in east direction at 205. The maximum displacements are observed in the upper part of Kemerovskaya Measures. It is noted that in the lower sections of these measures, displacements are gradually dying out. In all, seven faults have been identified within the area by geological exploration. The general continuity of Kemerovskaya Measures is to the north-east. The faults identified stretch linearly sometimes as a curve. (+/- 20) and they intersect coal seams at 3075, average 45, in the plan. Shear planes dips on the section are gently sloping to south east against coal seam dip, at 816, sometimes at 20. The throws of these faults as seen at the seams range between 212 m. The structure of the deposit is simple and each of the seams of interest is shown to be continuous over the area that has been explored. Over this area the geological correlation of the seams is well established. The seams are spaced with approximately 26 to 28 metres of strata between them, except for Seams IV and V which join in places. The interburden generally consists of siltstones and sandstone. 4.2.2.2 Stratigraphy The roof and floor strata are medium strength sandstones and siltstones, although some sandstones have an irregular erosion contact with the siltstones and in some cases may also affect the seam. The sandstones are porous and permit water inflow to the mine. There is significant water inflow into the development workings in the valley of the Olzheras River. This hazard decreases with depth of cover and is not expected to be a problem at Raspadskaya Koksovaya 4.2.2.3 Coal Seams and Quality In Field No.1, currently Seam IV-V is mined and the seams IV-V (combined), IV and V are being prepared. Field No.2 is composed of Kemerovskaya Suite, Upper Balakhonskaya sub-series deposits and comprises 4 mineable coal seams of various thickness and consistency III, IV-V, VI.. and VI..

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Seam III has consistent thickness, contains 1 to 10 mudstone bands between 0.05 to 0.50 m thick, and has an average seam thickness of 10.5 m. Its main roof is composed of sandstone, with the immediate roof represented by siltstones. Fine grained siltstones form the floor. The seam is mined extensively by the Tomusinsky district mines. Seam IV-V has an average thickness of 10.2 m and occurs 18-30 m below the floor of seam III. The seam has a complex structure and contains between 1 to 6 up to 9 dirt bands composed of coaly mudstone and siltstone, from 0.05 to 0.50 m thick. Along the strike from south-west to north-east the seam gradually thickens and reaches 10 m, and further on in the same direction splits into two independent seams IV and V. Seam IV has a complex structure and contains from 1 to 3-5 dirt bands, composed of siltstone, rarely of mudstone, with thicknesses varying from 0.02 to 0.35 m. The average thickness of coal seam is 2.4 m. The main roof is composed of sandstone, and the immediate roof is conglomerate. Seam V in the site area has an average thickness of 6.0 m. In the south-western part it has simple structure and in the north-east it contains 2-3, occasionally 3-5 dirt bands 0.05 to 0.25 m thick, composed of siltstone. Dirt bands have the shape of lenses and the immediate roof is siltstone. Seam VI is represented by two seams - VI.. and VI.. It occurs 26-40 m below the seam IV-V. The average thickness is 3.9 m. It has very complex structure and contains from 1 to 10 dirt bands 0.05 to 0.50 m thick. The dirt bands are composed of siltstones, occasionally of mudstones. In the southern part of the mine field seam VI splits into two independent seams. The immediate roof to the seam is siltstone. As the only data available to assess the qualities of the coals is from the explorations holes then the degree of confidence regarding coal quality data cannot be as high as that for the other mines of Raspadskaya. The seams are low in sulphur and phosphorus and have a low inherent ash. These coals are of K and KO grades under the Russian system. The main quality parameters for each of the seams are shown in Table 4-1 below. Table 4-1 Coal Quality Moisture % 0.90 0.90 0.80 Clean Coal ROM Ash Volatiles Plasticity Sulphur Phosphorus Ash % % % mm % % 10.2 10.5 12.7 13.9 15.8 18.8 25 22 22 13 10 12 0.40 0.30 0.34 0.01 0.01 0.01

Seam Coal Type III IV-V VI K KO KO

4.2.2.4 Other Geological Considerations Geotechnical The geotechnical classification is based on the Conclusion of NC VostNII of 08.23.2001 that assigns coal seams of former Tomusinskaya 5-6 mine to the class of hazardous in sudden outbursts of coal, rock and gas. According to these conclusions, the minimal critical depths of sudden outbursts of coal and gas follow the seam isohypse with absolute elevation +100 m. Coal seams within Tomusinskaya 5-6 mine field below the critical depths are potentially hazardous for outbursts and mining operations should be undertaken with forecast of outburst hazard at the place of access, operational forecast during driving of development workings, and assessment of potential outburst hazard of the seams prepared for extraction. Hydrogeology The annual average water inflow to the mine is about 550 850 m3/h at minimal inflow 250 m3/h and maximum with a spring flood up to 3,500 m3/h. Water inflow distribution is: Cross-entry field of +260 m level Inclined shaft field of Seam III Inclined shaft field of Seam IV-V 1903,000 m3/h 50450 m3/h 1040 m3/h

Water from the cross-entry field of +260 m level is drained into the capital workings of +260 m level and then self-flows along the dewatering drains into the storm water ditch on the mine site. Water from the inclined shaft

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field of Seam III is drained along the dewatering wells to the inclined shaft field of Seam IV-V and pumped to +260 m level. Gas Methane content of the coal seam grows consistently with the stratigraphic depth and along the strike of the coal measure from north-east to south-west, following the regional variations of Tom-Usinsky coal metamorphism. Coal bearing deposits of Balakhonskaya series are characterized by the abrupt transition from gas weathering zone to the methane gas zone. The most intensive increase of coal seam gas content is observed between the upper limit of methane zone and +160 m level. The rate of increase of gas content slows down with depth. The gradient of gas content growth from the upper limit of methane zone to +0 m level averages 7 m3/t, while that from +0 m level to -400 m level is only 1.4 m3/t. Spontaneous Combustion Coals of all seams within the mine field are prone to spontaneous combustion. Seam IV-V is very prone to self ignition with an incubation period of 48 days. 4.3 Reserves and Resources

The purpose of the valuation process is to confirm the reasonableness of Raspadskaya Koksovaya reserve and resource estimates and to establish that the reserve base is sufficient to enable the Companys production plan to be achieved. The reserves and resources are stated in accordance with international standards. 4.3.1 Nature of Evidence 4.3.1.1 Exploration Exploration of the deposit was performed traditionally using a drillhole grid at spacing of 300 m between the drillholes and 300 m between the survey lines. The drillhole depth varied from 200 to 900 m. The initial exploration campaign was in circa 1970-1973. In the period from 2002 to 2004 there was additional exploration at the expense of Raspadskaya-Koksovaya resources. During last three years further exploration of the mine districts aimed at infill drilling and detailing the data was performed. This ensured delineation of reserves down to level 540 m. However there is a lack of data for North-East due to the fact that it is impossible to drill holes close to the water treatment plant settling pond. A total of about 100 drillholes were drilled within the license area (8.3 drillholes per km2). Similarly with the adjoining districts, the results of the exploration drilling are shown in detail on maps and cross-sections. A diamond core drilling system was used for all drillholes. 4.3.1.2 Borehole Data The collars of exploration drillholes were surveyed and down-hole measurements using a directional survey tool to identify hole inclination were made. Additionally drillhole logging was used to predict mining conditions and samples of the cores were taken for geotechnical analyses. In addition, hydrogeological investigations were carried out in some drillholes. Reserve and resource estimation in the main license area is based on well documented and reliable data. Two main parameters that were used for resource estimates, seam thickness and ash were obtained from drilling and from numerous analyses of samples taken in mine workings on the upper levels. These data are quite adequate for determining coal quality and its ash at a reasonable confidence level. Drillhole logging data provided additional data of coal seam thickness and coal ash. 4.3.1.3 Sampling and Assay Data Core was sent to an independent laboratory (Central Analytical Coal Laboratory) where standard analyses for calorific value, ash, volatiles, plastimetry and partly for sulphur and phosphorus were made, 4.3.1.4 Survey Data Results of exploration drilling are shown in detail on maps and cross-sections. 4.3.1.5 Geological Modelling Computer modeling and reserve estimation methods are not used by the mine geologists, since there is no electronic data base of the deposit. Reserve estimates are undertaken manually. 4.3.2 Modifying Factors To evaluate the resources under JORC certain criteria must be in place to demonstrate that these resources are economic and meet the modifying factors.

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A costed business and mining plan that covers the mining areas until the year 2032 or whatever the cessation date before 2032; Production plans with the available mining layouts are available for the target seams with appropriate mining parameters and IMC have only assessed those tonnages that are shown in the current business plan as reserves; Evaluation of the reserve has only been done for the period of the mining plan as it is determined that these are demonstrated as being economic; It is assumed that proved reserves will be worked first in the course of depletion and that the balance of the plan if required will then come from the probable reserve if any; and If the mine license expires before the business plan end-date, it is assumed that there is a reasonable expectation that the license will be renewed by the authorities.

4.3.3 Verification Resource and mined tonnages are reconciled on a regular basis by the Company. Production forecast are based on samples taken in development headings; the actual parameters were based on samples from operating production faces. Randomly selected geological areas, where the original resource estimations and resource categories were assigned, were compared against the estimated figures by IMC and the results were generally found reasonably comparable to each other. IMC saw no reasons in the estimations to assume these were not correct and is of the opinion that this is reasonable and that the methods used to calculate the tonnages are valid. In addition to the random borehole records checks, the schedule plans were re-checked. Therefore it was concluded that the seam thickness and the coal density used to calculate tonnages are considered reasonable and compare well with the raw data. 4.3.4 Losses and Dilution The reported recoverable tonnages have taken into account geological and mining losses in the planned exploitation of the blocks based on operational records and the forward plans as shown in Table 4-2 below. Table 4-2 Raspadskaya Koksovaya Losses and Dilution Mine Field 1 Field 2 license KEM 15030 TE KEM 11578 TE Losses and Dilution % 27.74 66.09

4.3.5 Reserves and Resources Statement The reserves and resources have originally been estimated at the Soviet Union times by the various state geological institutions. Currently, the old Soviet system is still used in Russia which requires all the reserves to be verified and approved by the relevant state authorities under the Russian Reserve Classification System. In addition, the reserve accounts are submitted to the State Authorities for further approval for statistical and tax purposes at the end of each production year. IMC reviewed a vast amount of information and data available to estimate the reserves which were based on the Companys future mine plans. All the available mine plans from the prospective mineable seams along with the geological information and chosen mining methodology were examined and estimations were made on this basis. The block methodology was used for the calculations by using the appropriate formulae taking into account the level of mining, thickness distribution, mining parameters, tectonic zones, outcrop positions, coal quality and the degree of investigations of technological parameters and recognition of the deposit grade boundaries. IMC has concluded that the resource and reserve estimates prepared by the mine staff are considered reasonable and reliable for the following reasons: Mine production to date has shown that the major coal seams are consistent and of reasonable quality and that the data used in the estimation of resources and reserves is of reasonable quality. Disruptions to the seam continuity (such as wash outs, oxidation zones and faults) are well defined and established.

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Through the years, the mine personnel has undertaken further exploration to increase the confidence level about the geological uncertainty where the data seem to be sparse; and also gained further information through the existing mine work. Resources and reserves estimated by the mine must be submitted to a government ministry periodically for review and approval. This independent verification increases the confidence in the resources and reserves estimated by the mine. The Russian system used to classify resources is somewhat more conservative than the international system. Mining recovery factors used in the estimation of industrial reserves (equivalent to Reserves) are based on previous experience gained in mining the deposit. These factors can be predicted reasonably accurately.

Reserves for each seam were directly estimated under the JORC system by using available mine layouts for that seam, available thickness for mining including clastic bands and dilutions, ash content, seam specific gravity, seam structural continuity, borehole spacing, and as well as taking into account other factors such as structural complexity, faults, unstable roof and floor conditions, poor coal quality, previous working conditions and other geological factors. Table 4-3 below shows the Raspadskaya Koksovaya Resources and Reserves as at 31st December 2011. Table 4-3 Raspadskaya Koksovaya Resources and Reserves as at 31st December 2011 Mine Mine Field No. 1 Underground Mine Field No. 2 Underground Mineral Resources Category Measured Indicated Total Measured Indicated Total Inferred Measured Indicated Total Inferred '000t 149,534 149,534 82,973 82,973 142,380 232,507 0 232,507 142,380 Category Proved Probable Total Proved Probable Total Ore Reserves '000t 28,785 79,268 108,053 25,875 2,261 28,136

Raspadskaya Koksovaya Total

Proved Probable Total

54,660 81,529 136,189

4.4

Mining

Raspadskaya Koksovaya is a developing mine consisting of two areas: Mine Field No. 1 Mine Field No. 2

Currently the production operations are focused at Mine Field No. 1, whilst Mine Field No. 2 is being developed to extract for Seams III and VI. The combined production is building to 1.5 Mtpa and is plan to increase to 3 Mtpa with once Mine Field No. 2 reaches steady state. 4.4.1 Mine Field No. 1

Mine Field No. 1 is the former Tomusinskaya 5-6 and extracts coal from the area adjacent to former Shevyakova mine where coal was first mined in 2003. The mine is located to the north of Mezhdurechensk city between Raspadskaya mine and Lenina mine.

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4.4.1.1 Proposed Operations The +260 m production level of the Shevyakova mine is accessed by main and auxiliary adits driven above the seam sequence from the main surface mining site to access Seam III, 2. km from the drift portals, with: No. 1 conveyor incline; and A ventilation incline. Main and auxiliary drifts are parallel to each other at a 45 angle to the line of strike. The main drift is 2,260 m long. The auxiliary drift connects to a vertical ventilation shaft from the old mine and is 1,700 m long. This shaft does not form part of the new mine infrastructure. The western flank is accessed from the ventilation drift and supplies air to the lowest point of the mine area. The main adit will be used for transportation of coal to the surface stockpile. The conveyor inclined shaft has a gradient of 15-18. The auxiliary adit at the present time is used for materials and equipment haulage and man transportation in rail cars driven by electric locomotives on rail tracks with a line gauge of 900 mm. The nature of the deposit means that seams must be extracted in descending order. This practice is well established and the workings in all seams are correctly staggered. There are however exceptions to this when the seams are deemed too thin and are not part of the reserves in balance. The initial production will be from one longwall retreat face in Seam 6 upper which is 97 m long with a set of Russian heavy duty equipment extracting 5.2 m of coal. The seams vary in thickness and range from 1.8 to 11.0 m, the thicker Seams IV-V and III will be extracted in slices whilst the Seams IV, V and VI will be total extraction. The in-seam developments are equipped with KSP-32, 1GPKS and P-110, roadheaders. Panel development will be undertaken as a twin entry system, greatly simplifying ventilation and coal transport as well as facilitating the drilling of methane drainage holes into the caved waste area behind the retreating face. All roadways are supported with full column resin bonded roofbolts 20 mm diameter and 2.2 m long with a density of 1 bolt per m2. All of the roadways observed during the IMC underground visit were in good and stable condition. Coal from the longwall face and development headings is delivered to the surface by conveyors. 4.4.1.2 Infrastructure Surface Facilities The surface operations will be split between the two curtilages as the mine development progresses and production builds up. Mine Field No. 1 The transport drift is designated for rock removal and equipment and materials. The facilities will also include: Main TAF 38/21.5-1 fan; Fire pump station with two 1,000 m tanks; Coal and rock stockpiles and transfer facility to Raspadskaya CPP; and

Storm water treatment plant and garage for diesel plant. Mine Field No. 2 The ventilation drift is designated for the transport of men and materials. The facilities will also include: Stock yard for the temporary storage of equipment and materials, equipped with a travelling gantry crane; Maintenance workshop for monorail diesel locomotives; Lennetal No. 1 and No. 2 methane extraction plants; and

Storm water treatment plant and garage for diesel plant. Access Raspadskaya Koksovaya mine site is located in the surface curtilage of the former Shevyakova mine site and is adjacent to the Shevyakova rail loading station. The site is connected with Mezhdurechensk city by an asphalt class 1 road.

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The electrified main railway from Novokuznetsk to Abakan is located at a 5 km to the south-west of the mine site. The nearest station to the mine is Mezhdurechensk, from where there are branch lines to the Raspadskaya, Raspadskaya Koksovaya and Lenina mines. Air and telecommunications services are the same as those described for the Raspadskaya complex above. Electrical Power Power is supplied by Kuzbassenergo RES, a branch of MRSK Sibiri, from the Nagornaya 35/6 kV substation. The installed and proposed power is 14,710 kVA against a substation transformer capacity of 21,140 kVA which is adequate and no serious changes are planned in the power supply and distribution system. However, the mine will be supplied from the new power system being established at No. 6 shaft site as described above in Section 2.5.2. Water Supply The mine water treatment plant supplies all the operational water needs for the mine with a domestic and potable water supply from the municipal water main. Drainage Water from the goaf areas of the abandoned Shevyakova mine flows to the +260 m level and accumulates in the water sump located in No.1 Drift with in follows of: Average 500-850 m3/hour; and Maximum 3,500 m3/hour. Water inflow from the mining operations below the 0 m level will be transferred to a central water sump located at the +70 m level. This pumping station is equipped with four 300 m3/h and 300 m head pumps 300/300 and two 14UV6coal pumps which will pump to the surface via the ventilation drift. Ventilation The mine is ventilated by two 4VTs-15 fan sets located at the portal of the ventilation drift. The mine is currently ventilated by a forcing system via one intake and one return drift, plus a back return for goaf gas. There is an urgent need to complete the new ventilation drift to provide adequate ventilation to the face and development headings. The full ventilation system will not be completed for about five years, when the northeastern ventilation shaft will be sunk. Whilst forcing ventilation is widely practiced in Russia it is not accepted as international best practice. The mine is classified as the highest category with regard to methane content, hazardous with regard to coal dust explosion, frictional sparking of roof and floor rocks and interburden, rock bumps from the depth of +150 m, outbursts of coal and gas below +100 m level. The coal seams are also liable to spontaneous combustion. The methane content is expected to be of the order of 25 m3/t and effective drainage from the distressed areas behind the faces will have to be used. IMC also understands that a programme of pre-drainage is being implemented. Compressors There is a Shtorm 4200 surface compressor station which supplies the mine. Mine Workshops The mine has limited capacity for the equipment and the majority of the machinery repair and maintenance requirements are fulfilled by the Raspadskaya mine workshops. Explosives The Company is licensed for the storage and use of industrial blasting materials for blasting operations in underground workings and on the surface in gas hazardous or extract dust explosion hazardous seams. 4.4.2 Mine Field No. 2 Mine Field No. 2 is a new mine development which will work the Olzherasskoye deposit via two inclined surface drifts from a separate curtilage to Mine Field No. 1. The approval for Mine Field No. 2 is expected by the end of 2012 with first production in 2015. 4.4.2.1 Proposed Operations

There are three seams planned to be mined are Seams III, IV-V and VI, which will be mined in the following order: Seam VI Seam III, and finally Seam IV-V.

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No. 2 Transport Draft. Coal is proposed to be extracted by both longwall methods using shearers, powered supports and caving in the standard configuration as well as room and pillar methods using continuous miners. The development drivages will be equipped with road headers and continuous miners as shown in Table 4-4 below. Table 4-4 Field No. 2 Development Equipment Equipment Continuous Miner Roadheader Roadheader Belt conveyors Shuttle car Drilling Rigs Drilling Rigs Type JOY 12SM30 and JOY 12SM27 KPS 32 GPKS and P110 01 2PT 120 JOY 10SC 32 and JOY 10BS 15 WOMBAT SS Origin USA Ukrainian Russia Russia USA Australian Russian

4.4.2.2 Infrastructure Access The site is connected with Mezhdurechensk city by an asphalt class 1 road. Air and telecommunications services are the same as those described for the Raspadskaya complex above. During longwall mining, coal will be transported with conveyors via the adit to Raspadskaya CPP. Electrical Power A temporary power supply has been provided with twin overhead lines at 6 kV from Raspadskaya 2 substation. This temporary supply will be replaced by a direct feed from the new power system being established at No. 6 shaft site as described above in Section 2.5.2 Water Supply The water supply is provided by 4 boreholes and water from Raspadskaya water treatment plant. Drainage The main underground pumping station will be located at the - 175 m level and will consist of two sumps with a capacity of 2,550 m3 each and pump chamber with 5 pumps, 500 m3/h and 560 m head. The water will be pumped to the surface via No.1 Ventilation Drift to a treatment plant for discharge into the Olzheras River. Ventilation The main ventilation is provided by the fan at Mine Field No. 1 surface. Pre-drainage of the longwall panels will be effected by surface and underground boreholes connected to the Lennetal No. 1 and No. 2 methane extraction plants 4.5 Environmental Issues

4.5.1 Environmental and Social Status Raspadskaya Koksovaya consists of two underground mines, Mine Field No. 1 and Mine Field No. 2, exploiting the Olzherasskoye coal deposit. At present, coal mining operations are underway at Mine Field No. 1 site whilst development work is in progress at Mine Field No. 2. 4.5.2 Permitting and Compliance The Company holds most of the necessary environmental permits, as summarised in Table 4-5 below. At present the company does not have permission for discharge of polluting substances at outlet No.2. However, the application and justification documents for the discharge threshold limits are in the process of agreement by

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the Kemerovo Oblast Department for Water Resources of the Upper Ob River Basin Water Management Agency. Table 4-5 Raspadskaya Koksovaya Environmental Permits Document Permit for emission of polluting (harmful) substances into the air Emission threshold limit estimates Licence for collection, utilisation, neutralisation, transportation and disposal of waste of hazard classes 1-4 Waste generation standards and waste disposal limits Permit for discharge of polluting substances into water bodies (outlet No. 1) Permit for discharge of polluting substances into water bodies (outlet No. 2) Number and date of issue/approval No. 10/ atmMezh of 18.03.2011 2010 No. -042 No. 00040 of 08.07.2011 No. 14/ othMezh of 05.09.2011 No. 8/2 voda/Mezhd of 14.02.2011 Being agreed Outlet No. 1, Olzheras river No. 0185/ RRT/Ss 06.2011 of 15.06.2011, outlet No. 2, UstunguChulat brook No. 0186/ RRT/Ss 06.2011 of 15.06.2011 Federal Agency for Supervision over Natural Resource (Rosprirodnadzor) Federal Agency for Supervision over Natural Resource (Rosprirodnadzor) Federal Agency for Supervision over Natural Resource (Rosprirodnadzor) Federal Agency for Supervision over Natural Resource (Rosprirodnadzor) Issued/approved by Federal Agency for Supervision over Natural Resource (Rosprirodnadzor) Valid until 31 December 2015 31 December 2015 08 July 2016

08 July 2016

31 March 2014

Permit (licence) for water body use

Department for Natural Resources and Environment of Kemerovo Oblast

31 December 2016

The Company is in compliance with the general conditions of the permits and with the specified limits for air emissions and waste materials. However the limits for some parameters in the treated water discharge are exceeded and as a result the company pays environmental charges at a higher rate. 4.5.3 Potential Impacts and Control Measures 4.5.3.1 Air Emissions The major sources of air pollution are the mine workings, boiler houses, open coal stockpiles, repair facilities and the degassing facility. Emissions are primarily associated with methane and dust in the mine ventilation air, and dust and gaseous products of coal combustion at the boiler house. There are no facilities for capture and use of methane which in 2011 amounted to 25,926 t, which is approximately 50% below the limit set by the air emission permit. The boiler house is equipped with a cyclone type dust collector with a typical dust capture efficiency of 83%. Recent monitoring results indicate that the threshold limit values for dust and gaseous substances are not exceeded at the sanitary protection zone boundary. Between 2006 and 2010, 22 households located within the sanitary protective zone were resettled. 4.5.3.2 Water Use and Discharge Mine Take No. 1 site is supplied with water from the municipal water supply pipelines. Domestic and potable water is delivered to Mine Take No. 2 site in vehicles. The process water supply of Mine Take No. 2 site includes treated mine water from the treatment facilities of Raspadskaya and also from the underground water intake.

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The domestic waste water from Mine Take No. 1 site is treated at the municipal sewage system. The domestic waste water from cesspools of Mine Take No. 2 site is transported to the treatment facilities of Raspadskaya. The mine water from Mine Take No. 1 site is discharged into surface water bodies after settling of suspended solids and chlorine treatment. The mine water from Mine Take No. 2 site is delivered to the treatment facilities of Raspadskaya. According to the operational control data, the threshold limit concentrations of suspended solids, manganese, copper, zinc, oil products, phenol and chloride are exceeded in the waste water discharged from the mines treatment facilities. The company is planning to have new treatment facilities in operation in 2012 to improve the quality of the treated water. 4.5.3.3 Solid Waste The mine has no permanent waste storage facilities. All waste is handed over to special organisations for utilisation or disposal. 4.5.4 Environmental Management The environmental department of Raspadskaya Koksovaya includes the head of the department and 1 specialist and reports to the Department of Labour and Environmental Safety of Raspadskaya Coal Company and the Chief Engineer of Raspadskaya Koksovaya. The qualification level of the staff of the environmental department of Raspadskaya-Koksovaya is recognised as high. Environmental monitoring is arranged in compliance with the approved monitoring programme and includes: monitoring at emission sources; ambient air quality at the boundary of the sanitary protection zone; soil; and treated waste water, the receiving water bodies and underground water quality.

Analyses of the samples are conducted at certified third party laboratories. 4.5.5 Rehabilitation 4.5.5.1 Progressive Rehabilitation There are no progressive rehabilitation targets at Raspadskaya Koksovaya. In the course of underground coal mining, the surface deformation manifests itself as smooth lowering without caving and fracturing. 4.5.5.2 Closure Rehabilitation It is planned to complete mining operations at Raspadskaya Koksovaya mine in 2060. Hence, there are no detailed plans of disturbed land rehabilitation. However, the rehabilitation costs are estimated regularly, and also within the framework of the annual JORC reserves and resources valuation. According to the latest estimates, the cost of rehabilitation of the land disturbed in the course of Raspadskaya Koksovaya operation is RuR 29.3 M. 4.5.6 Summary of Potential Risks and Liabilities The Company holds the required environmental permits, with the exception of permission for discharge of polluting substances at outlet No. 2 which is under the application process. This is expected in the near future. The main risk is related to discharge of treated waste water exceeding the permitted standards due to inefficient operation of treatment facilities. IMC understands that the Company plans to construct additional waste water treatment facilities in 2012. Until this is completed the Company incurs over limit charges for the water discharge.

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5
5.1

RASPADSKY OPEN PIT

Maps and Plans Raspadsky Open Pit

Plate 5

IMC visited all of the operations in January 2012. 5.2 Geology

5.2.1 Regional Geology The regional geology is the same as described in Section 2.2.1 above. 5.2.2 Raspadsky Geology Opencast Raspadsky operations are to be found in four locations. Raspadsky West and Raspadsky East are sited within the Raspadskaya license area. The Olzherassky open pit operations work at the outcrop of the MUK 96 license area. The fourth operation is at Glukhovsky site which contains the same seams as at Raspadskaya mine, Seams 3 to 11, but which have differing seam unions to those seen at Raspadskaya mine, especially in the lower sequence where seams begin to coalesce and join together in an easterly direction. 5.2.2.1 Stratigraphy The mining areas of the Raspadskaya mine are defined by the limits of the two mine licenses. The south or Main license covers an area of approximately 12 km x 4.5 km and the north or Mine Raspadskaya 2 license covers an area of 10 x 2 km. Nineteen coal seams occur in the mine with a total thickness of 54 m in a geological section. These coal seams occur in the Ilyinskaya and Yerunakovskaya sub-series of the Kolchuginskaya series. All the seams in the sub-series outcrop in the license areas. 5.2.2.2 Tectonic Structure Small amplitude faulting is found throughout all seams in the mining areas. These however have limited effect on opencast operations. 5.2.2.3 Coal Seams and Quality Each of the open pit areas is made up of different combinations. Raspadsky West Raspadsky East Olzherassky Glukhovsky Seams 6-6a, 3-3a; Seams 7-7a, 6-6a, 4-5, and 3-3a; Seams 19, 18, 17, and 15; and Seams 11, 9-10, 7-7a, 6-6a, 6-6a-5, 6-6a-4-5, 4-5, 5, 3-3a, and 3-3a-2a.

Seam 17 The thickness of Seam 17 seen in the boreholes varies from 1.88 to 4.40 m, with an average of 2.7 m. The seam structure is fairly complex with the roof represented predominantly by sandstones; and floor, siltstones and carbonaceous siltstone. Seam 15 This seam lies 100 m above Seam 13. It has fairly complex structure and includes from 1 to 6 stone partings of 0.05 to 0.40 m thick built by siltstones. The seam thickness range is 3.24 to 4.17 m. The seam roof and floor are represented by siltstones. Seam 13 Seam 13 is located between 12 to 81 m above Seam 12. The seam is inconsistent but over most of the area maintains a workable thickness in a range of 1.80 to 3.89 m. From the north-east to south-west the thickness gradually reduces and the seam becomes unworkable. The roof consists of siltstone and sandstones and the floor is mainly of siltstones. Seam 12 Seam 12 is located between 0.55 and 50 m above Seam 11. The seam is of simple and fairly complex structure and is inconsistent. In general the seam is mainly workable in the north-eastern part of the take with thickness ranges up to 2.64 m. The roof of the seam is sandstone with some gravel and siltstones. The floor is mainly siltstone with carbonaceous siltstone intercalations. Seam 11 This seam is located 20-60 m above Seam 9-10, except in the north-eastern parts of the sites where they merge. The seam is consistent with fairly complex structure, which includes 1 to 4 stone partings of

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0.05 to 0.10 m thickness. The seam thickness is regular in the range of 2.27-3.35 m. The roof and floor are siltstones with carbonaceous sandstone. Seam 9-10 The seam is consistent with thickness ranging from 2.80 to 5.55 m that gradually increases from the south-west to north-east. The seam is complex and includes 8 stone intercalations. The roof and floor of the seam are mainly coarse and fine-grain siltstones with interbedded siltstone and sandstone. Seam 7-7 The seam is located 20 to 60 m below Seam 9-10. The seam is consistent and consists of 4 to 6 coal bands with thickness varying from 4.87 to 2.42 m. The roof and floor are siltstones. Seam 6-6 The seam is located 15-124 m from Seam 7-7. Seam 6-6a gradually merges with Seam 7-7a in the north-east direction. The seam is consistent with a complex structure consisting of 2 to 9 stone partings of 0.03-0.43 m. The seam thickness varies from 2.65 to 6.46 m, reducing from the south-west to north-east. The roof and floor are siltstones with carbonaceous shale. Seam 5 Seam 5 is 1 to 26 m from above Seam 6-6a. The seam is inconsistent with a thickness varying significantly over short distances from 0.35 to 3.70 m. The roof and floor are siltstones with some carbonaceous siltstone and sandstone. Seam 3-3 Seam 3-3 is inconsistent and is located in 2 to 38 m from the seam above. The thickness ranges from 0.26 to 3.78 m, having workable sections through the majority of the take. The roof and floor are mainly siltstones with some sandstone. Table 5-1 below shows the indicative coal qualities by seam. Table 5-1 Coal Quality Moisture Clean Coal ROM Ash Volatiles Plasticity Sulphur Phosphorus % Ash % % % mm % % 1.68 1.69 1.71 1.65 1.55 1.38 1.38 1.33 1.44 1.15 1.12 0.97 1.37 1.19 1.67 1.11 1.47 1.28 1.15 9.5 8.4 8.2 8.2 7.9 7.7 9.2 8.9 8.8 9.0 9.6 8.9 9.3 8.9 9.4 8.3 10.1 10.2 9.5 16.5 16.4 13.3 15.0 12.4 11.4 15.6 14.0 16.5 15.9 18.5 20.2 19.9 16.7 20.7 21.5 20.6 21.6 19.6 33.1 34.8 34.5 34.8 35.8 36.4 36.0 36.2 35.6 36.2 36.0 36.0 35.1 36.1 35.3 36.0 35.2 35.6 35.1 10 11 11 11 13 20 13 19 13 21 21 23 13 21 13 20 13 15 21 0.93 0.039 0.50 0.50 0.77 0.77 0.73 0.73 0.73 0.73 0.68 0.68 0.070 0.070 0.094 0.094 0.145 0.145 0.145 0.145 0.034 0.034 0.30 0.34 0.32 0.019 0.063 0.180

Seam Coal Type 13 12 11 11-9-10 9-10 GZh GZh GZh GZh GZh GZh GZh 7-7 GZh GZh 6-6 6-6, 5 6-6, 4-5 5 GZh GZh GZh GZh GZh GZh 4-5 GZh GZh 3-3 Zh Zh

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The purpose of the valuation process is to confirm the reasonableness of Raspadsky reserve and resource estimates and to establish that the reserve base is sufficient to enable the Companys production plan to be achieved. The reserves and resources are stated in accordance with international standards. 5.3.1 Nature of Evidence 5.3.1.1 Exploration An exploration drilling and sampling programme was implemented in a high professional manner with 47 drillholes (23.5 drillholes per km2) being drilled in the Glukhovsky district and 176 drillholes (22.3 drillholes per km2) in District IX-XI. 5.3.1.2 Borehole Data The data that were the basis of reserve and resource estimates are logged in detail and are of good quality. Two main parameters were used in resource estimates, seam thickness and ash based on drilling results. In spite of the fact that core recovery was not satisfactory in some drillholes, in general, core recovery was sufficient for coal quality and ash determination at a well-grounded level of accuracy. Down-hole logging provided additional data of seam thickness and ash. 5.3.1.3 Sampling and Assay Data All analytical data are of high quality since sample analyses were done by independent laboratories in compliance with the standard industrial procedure for quality control. Check analyses were often carried out in more than one laboratory using duplicates. 5.3.1.4 Survey Data Results of exploration drilling are shown in detail on maps and cross-sections. 5.3.1.5 Geological Modelling Computer modeling and reserve estimation methods are not used by the mine geologists, since there is no electronic data base of the deposit. Reserve estimates are undertaken manually. 5.3.2 Modifying Factors To evaluate the resources under JORC certain criteria must be in place to demonstrate that these resources are economic and meet the modifying factors. A costed business and mining plan that covers the mining areas until the year 2032 or whatever the cessation date before 2032; Production plans with mining layouts are available for the target seams with appropriate mining parameters and IMC have only assessed those tonnages that are shown in the current business plan as reserves; Evaluation of the reserve has only been done for the period of the mining plan as it is determined that these are demonstrated as being economic; It is assumed that proved reserves will be worked first in the course of depletion and that the balance of the plan if required will then come from the probable reserve if any; and If the mine license expires before the business plan end-date, it is assumed that there is a reasonable expectation that the license will be renewed by the authorities.

5.3.3 Verification Resource and mined tonnages are reconciled on a regular basis by the Company. Production forecast are based on samples taken from operating production benches. Randomly selected geological areas, where the original resource estimations and resource categories were assigned, were compared against the estimated figures by IMC and the results were generally found reasonably comparable to each other. IMC saw no reasons in the estimations to assume these were not correct and is of the opinion that this is reasonable and that the methods used to calculate the tonnages are valid. In addition to the random borehole records checks, the schedule plans were re-checked. Therefore it was concluded that the seam thickness and the coal density used to calculate tonnages are considered reasonable and compare well with the raw data.

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5.3.4 Losses and Dilution The reported recoverable tonnages have taken into account geological and mining losses in the planned exploitation of the blocks based on operational records and the forward plans as shown in Table 5-2 below. Table 5-2 Raspadsky Losses and Dilution Mine Glukhovsky Open Pit Raspadsky IX-XI District license KEM 13446 TE KEM 13873 TE Losses and Dilution % 7.20 13.30

5.3.5 Reserves and Resources Statement The reserves and resources have originally been estimated at the Soviet Union times by the various state geological institutions. Currently, the old Soviet system is still used in Russia which requires all the reserves to be verified and approved by the relevant state authorities under the Russian Reserve Classification System. In addition, the reserve accounts are submitted to the State Authorities for further approval for statistical and tax purposes at the end of each production year. IMC reviewed a vast amount of information and data available to estimate the reserves which were based on the Companys future mine plans. All the available mine plans from the prospective mineable seams along with the geological information and chosen mining methodology were examined and estimations were made on this basis. The block methodology was used for the calculations by using the appropriate formulae taking into account the level of mining, thickness distribution, mining parameters, tectonic zones, outcrop positions, coal quality and the degree of investigations of technological parameters and recognition of the deposit grade boundaries. IMC has concluded that the resource and reserve estimates prepared by the mine staff are considered reasonable and reliable for the following reasons: Mine production to date has shown that the major coal seams are consistent and of reasonable quality and that the data used in the estimation of resources and reserves is of reasonable quality. Disruptions to the seam continuity (such as wash outs, oxidation zones and faults) are well defined and established. Through the years, the mine personnel has undertaken further exploration to increase the confidence level about the geological uncertainty where the data seem to be sparse; and also gained further information through the existing mine work. Resources and reserves estimated by the mine must be submitted to a government ministry periodically for review and approval. This independent verification increases the confidence in the resources and reserves estimated by the mine. The Russian system used to classify resources is somewhat more conservative than the international system. Mining recovery factors used in the estimation of industrial reserves (equivalent to Reserves) are based on previous experience gained in mining the deposit. These factors can be predicted reasonably accurately.

Reserves for each seam were directly estimated on the principles of JORC system by using available mine layouts for that seam, available thickness for mining including clastic bands and dilutions, ash content, seam specific gravity, seam structural continuity, borehole spacing, and as well as taking into account other factors such as structural complexity, faults, unstable roof and floor conditions, poor coal quality, previous working conditions and other geological factors. Table 5-3 below shows the Raspadsky Resources and Reserves as at 31st December 2011.

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Competent Persons Report on Mining Assets Russia Raspadsky Resources and Reserves as at 31st December 2011 Mineral Resources Mine Category Glukhovsky Open Pit Measured Indicated Total Raspadsky IX-XI District Open Pit Measured Indicated Total Raspadsky Total Measured Indicated Total 122,085 136,945 0 136,945 14,860 122,085 '000t 14,860 Category Proved Probable Total Proved Probable Total Proved Probable Total '000t 13,476 405 13,881 69,037 36,811 105,848 82,513 37,216 119,729 Ore Reserves

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Table 5-3

5.4

Mining

Raspadsky open pit started production in 2004 with a design capacity of 3 Mtpa. The mine is working the Glukhovskoye deposit with the current stripping ratio of 8.8 m3/t, producing 2.7 Mt in 2011. The Glukhovskoye deposit is in south western part of the coal measures which outcrop above the MUK 96 and Raspadskaya Koksovaya mine takes. The mine is planned to extend north east into the Raspadsky area from 2013 onwards. The open pit is 2.5 km along the strike and 700 m across the dip working up to 12 seams from Seam 3 to Seam 13the with varying thickness. 5.4.1 Current Operations Due to the complex surface relief of the Glukhovsky site and the geological structure the operational zone is divided into two blocks (south-western and north-eastern). Access to the south-western block uses the initial cut of the seam 3-3 to the +340 m level, there are also two access roads to the upper and lower horizons running from the +370 m level on the north-eastern side wall. Mining operations proceed from the south west to the north-east The pit is operated as a strip mine following the seams down dip in benches or strips. The bench face angle is 70 whilst the overall pit slope is 41. Production, overburden and interburden extract is by conventional truck and shovel. Drilling and blasting is used where the strata or coal requires. Bench heights are up to 15 m in overburden and interburden and 10 m in coal seams depending on the thickness of the coal seams and interburden strata. The excavation is undertaken by a fleet of 8 to 23 m3 shovels loading into 50 to 220 t dump trucks supported by drill rigs, bulldozers and graders as shown in Table 5-4 below. Table 5-4 Raspadsky Mobile Plant Equipment Hydraulic Excavators and Loaders Type Komatsu PC 5500, 28 m3 RH 340, 23 m3 RH 200 16 m3 RH 170, 15 m RH 40, 4 m3 Cat 5110, 6 m Dump Trucks
3 3

Number 1 1 1 2 2 2 10

Cat - 777 D, F, 90 t

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Equipment

Type Cat 785, 140 t Kmatsu HD 785, 130 t BelAZ 75306, 220 t BelAZ 7555, 50 t

Number 4 4 18 5 3 1 3 2 2

Drill Rigs

Drill Tech D - 45 KS Atlas Copco DML-1200

Bulldozers

Kmatsu - 375 Cat D 10 R Cat D 9 R

The equipment is of various age but is relatively new and all in adequate condition. It is capable of maintaining planned production rates with appropriate maintenance and management. IMC understands that the availability of the new western mobile plant is above 90% but this deteriorates to approximately 80% over a 2 to 3 year period. The mine has a large well run mobile plant workshop which caters for all the machine maintenance and repairs including major component replacement and there is also a comprehensive programme for new equipment purchase based on unit replacement and the proposed production expansion. Overburden and interburden waste is transported to ex-pit dumps where the average haulage distance is 3 km. After the completion of the Glukhovsky and Raspadsky IV sites, the overburden from Raspadsky IX-XI site will be dumped within the mined out area pit void. 5.4.2 Future Plans Further development of the Glukhovsky site is planned with mining operations going down to the bottom level of the license area at the +280 m level and the highwall moving north-western to its final position. The average stripping ratio for the whole of the site is estimated to be7.6 m3/t. The Raspadsky IX XI and Raspadsky IV site will be divided into 3 blocks, each of them 4.3 km long, and mined sequentially one by one. As the operations move to the new areas it is intended to increase production up to a steady state of 5 Mtpa by 2015 at an overall stripping ratio of 9.7 m3/t. IMC has examined the foreword plans and considers them to be achievable and that adequate capital provision has been made within the Company Business plan. 5.5 Infrastructure

5.5.1 Access Raspadsky is situated with the Raspadskaya complex and has the same road, rail, air and telecommunication services as described above in Section 2.5.1 for Raspadskaya mine From the main complex roads there is a 10 km class 3 road for open pit access and for coal haulage to the CPP. 5.5.2 Electrical Power Power is supplied from the Raspadskaya 2 substation with a current load of 3 MW at 380/6 kV. . However, the mine will be supplied from the new power system being established at No. 6 shaft site as described above in Section 2.5.2 with two 10 MVA overhead lines. 5.5.3 Water Supply The potable and industrial water is supplied to the open pit from abstraction boreholes, primarily for use in the large mobile plant workshops. 5.5.4 Drainage The open pit has a maximum water make of 570 m3/h with an average of 54 m3/h, which is used for mainly for dust suppression within the pit operations. There are settling ponds available should they be required.

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5.5.5 Mine Workshops The main workshop is extensive which caters for all the machine maintenance and repairs including major component replacement in accordance with a duty based (number or running hours) planned preventative maintenance scheme. The scheme is supplemented with major overhaul services supplied by the OEM and warranty period support. 5.5.6 Explosives The Company is licensed for the storage and use of industrial blasting materials for blasting operations in underground workings and on the surface in gas hazardous or extract dust explosion hazardous seams. 5.6 Projects and Prospects

5.6.1 Coal Projects There are no stand-alone mining projects specific to Raspadsky open pit other than the overall mine development programme which is described above in the future plans where the costs have been incorporated into the capital expenditure of the Companys financial model. 5.7 Environmental Issues

5.7.1 Environmental and Social Status The opencast operation is at the Glukhovsky site located in the north-eastern part of the Raspadskoye deposit. The nearest population centres are the village of Raspadny, situated 3.5 km south-west from the site and the city of Mezhdurechensk 15 km south. In the south-east, the site borders the Eastern Olzheras river. The operations comprise the open pit mine, in-pit and external overburden dumps, water treatment facilities, mine access and haul roads and the production sites. 5.7.2 Permitting and Compliance Until 2011, the amount of pit drainage water was insignificant, and all of the water was used for technological needs after settling in the sumps. Due to higher water make at the mine from 2012, it will become necessary to discharge treated pit water to the Eastern Olzheras river. Therefore the Company is presently in the process of obtaining a permit for discharge of polluting substances and formalising the discharge threshold limits. The Company holds all other necessary environmental permits, details of which are given in Table 5-5 below.. Table 5-5 Raspadsky Open Pit Environmental Permits Document Permit for emission of polluting (harmful) substances into the air Number and date of issue/approval No. 19/ atmMezh of 1.04.2008 Issued/approved by Federal Agency for Environmental, Technological and Nuclear Supervision (Rostechnadzor) Federal Agency for Environmental, Technological and Nuclear Supervision (Rostechnadzor) Federal Agency for Environmental, Technological and Nuclear Supervision (Rostechnadzor) Federal Agency for Supervision over Natural Resource (Rosprirodnadzor) Valid until 31 December 2012

Emission threshold limit estimates Licence for collection, utilisation, neutralisation, transportation and disposal of waste of hazard classes 1-4 Waste generation standards and waste disposal limits Permit for discharge of polluting substances into water bodies Discharge threshold limit estimates Permit (licence) for water body use

2008 No. -68001025(42) of 12.12.2008 No. 6/ othMezh of 1.01.2011

31 December 2012

12 December 2013 12 December 2013

Being agreed upon; was not necessary earlier due to absence of discharge Being agreed upon; was not necessary earlier No. 0203/RRT/Ss Department for Natural 31 December 08.2011 of Resources and Environment of 2013 04.08.2011 Kemerovo Oblast

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The Company is in compliance with the general conditions of the permits and with the specified limits for air emissions and waste materials. 5.7.3 Potential Impacts and Control Measures 5.7.3.1 Landscape In common with similar operations elsewhere, open cast mining disturbs a relatively large area of land and the local ecology. This results in irretrievable changes due to voids remaining after completion of mining and the visual effects on the landscape due to the construction of overburden storage heaps. Raspadsky plans to mitigate these effects by progressive and final rehabilitation measures which include back filling the open pit void, rehabilitation of the overburden dump and planting trees on disturbed areas. 5.7.3.2 Air Emissions The major sources of air pollution are dust emissions arising from: drilling and blasting operations; excavation and loading of overburden and coal carried out in the opencast; vehicle movements on the dirt/gravel access routes; wind blown dusting of the overburden dump; crushing and screening of coal; and the coal fired boilerhouse.

Mitigation measures include dust control systems at the boilerhouse and water spraying the mine access and haulage routes in summer to suppress dust. Gaseous emissions are produced by vehicle engines, repair workshops, boiler houses and fuel and lubricants storage facilities. The nearest residential area is located far from any influence of the mining site but sanitary protective zones of diameters 1,000 m for the opencast and 500 m for the overburden dump are applied. According ambient air monitoring during the last 3 months, the threshold limit values were not exceeded at the boundaries of the sanitary protective zones. 5.7.3.3 Water Use and Discharge Domestic and potable water are supplied to the production site from a water intake well. Domestic waste water is treated at the water treatment facility of Raspadskaya. Up to 2011, the pit drainage water was relatively small in volume and was used totally for dust suppression which excluded the need for discharge into natural water bodies. In 2011, water treatment facilities were constructed in anticipation of increasing volumes of pit drainage water. From 2012, the water exceeding technical requirements will be discharged after treatment into the Eastern Olzheras River at the estimated rate of 3.19 million m3/yr. The treatment facilities comprise two reservoirs, a settling pond and a clarified water pond, separated by a filtering dam. Boom filters are installed to capture oil products. 5.7.3.4 Solid Waste Overburden is stored in an external pit dump located adjacent to the south-west part of the opencast and used for backfilling the mined out part of the opencast. The design area of the external pit dump is 338.6 ha. In addition to overburden rocks, the dump is used for storage of ash and slag from the boiler house. Operate of the external dump is planned up to 2017 and from then the overburden from the new mining site, Raspadsky IX-XI, will be stored in the Glukhovsky site opencast according to the technical rehabilitation programme. 5.7.4 Environmental Management The environmental department of Raspadsky Opencast includes 1 specialist who reports to the Department of Labour and Environmental Safety of Raspadskaya Coal Company and the Chief Engineer of ZAO Raspadsky Opencast. Environmental monitoring is arranged in compliance with the approved programme developed in 2010. Laboratory analyses of the monitoring samples are conducted at two certified laboratories, the sanitary and epidemiological laboratory of Yuzhny Kuzbass and the Federal Hygiene and Epidemiology Centre in Kemerovo Oblast. Monitoring of the soil contamination is carried out by a separate special organisation.

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Competent Persons Report on Mining Assets Russia 5.7.5 Rehabilitation The Company has developed designs for disturbed land rehabilitation.

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5.7.5.1 Progressive Rehabilitation Rehabilitation of 5 ha of the in-pit dump, Raspadskaya 5 Block, is carried out annually at a current cost of RuR 140,000. The rehabilitation includes three stages: coarse levelling of the surface; final levelling after the dump settling and stabilisation; and the biological stage, which involves tree planting and is performed under contract with the Mezhdurechensk forestry department.

According to the 20 year rehabilitation plan, the in-pit dump rehabilitation will be completed in 2018-2019. It is planned to rehabilitate 10 ha a year. Rehabilitation of the external dump is planned to commence in 2019 as soon as it reaches its design configuration and the ground is stabilised. 5.7.5.2 Closure Rehabilitation According to the mine plan operations on Glukhovsky site will be completed in 2017 and then mining operations will start on Raspadsky IX-XI site. The overburden from Raspadsky IX-XI site will be delivered to the Glukhovsky opencast site to carry out the technical rehabilitation. The cost of rehabilitation of the overburden dumps and Glukhovsky site, excluding the progressive costs planned for the next 20 years, is RuR 57.2 M. For Raspadsky IX-XI site the estimated cost is RuR 275.7 M. 5.7.6 Summary of Potential Risks and Liabilities At present the permit and standards for discharge of polluting substances to natural water bodies is under approval by the authorities. The mine plans to commence discharge of water in 2012 following increase in the water make in the open pit and construction of treatment facilities. There is some risk that the treated water may not meet the required standards for discharge to surface waters, as specified in the permit. In this case the company would be faced with payment of over-limit charges until the situation is rectified.

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6
6.1

RASPADSKAYA COAL PREPARATION PLANT

General

Raspadskaya coal preparation plant commenced commissioning in the third quarter of 2005 after a construction period of approximately two years. The plant originally comprised 2 sections of 2 streams each rated at 400 tph processing capacity. The first two sections were designed to treat the output from the Raspadskaya Mine and other mines from within the Group, taking coal from the Raspadskaya, MUK 96 and the Raspadsky open pit operations. A new Section of the same capacity as the first two sections was added to the plant in 2008 and this will treat the output from the new Koksovaya deep mine. The third section is designed to process KO and KS coals from this new production. The third section has the capability of producing a middling product suitable for thermal power plant. 6.2 Plant Description

ROM coal is delivered to the plant either by conveyor from Raspadskaya or by haul truck from MUK 96, Raspadskaya Koksovaya and Raspadsky. From the ROM input pad it enters the CPP build in two streams, which can be separated for different types of coal. The coal is then crushed and sized before entering the high pressure hydro-cyclones. The design incorporates a combination of two-stage high pressure hydro-cyclones, spiral classifiers and screenbowl centrifuges for the dewatering of the fine coal which allows the concentrate moisture to be reduced to a level which, following a degree of air drying within the enclosed stock building would ensure that the target product moisture content of 8% is met. Table 6-1 below shows the characteristics of the ROM coal from each mine for the last three years. Table 6-1 Historical ROM Coal Characteristics Source of Supply Raspadskaya MUK 96 Raspadskaya Open Pit Total Raspadskaya MUK 96 Raspadskaya Open Pit Total Raspadskaya MUK 96 Raspadskaya Open Pit Total 2011 2010 2009 Year 000t 6,819 1,861 1,890 10,570 3,150 1,820 1,778 6,748 1,234 1,167 2,740 5,141 Moist % 7.8 8.0 7.1 7.7 7.7 7.4 7.3 7.5 6.6 6.5 6.7 6.9 Ash % 27.9 30.8 26.6 28.3 26.1 26.8 24.7 25.8 39.8 25.6 26.5 29.5 Y mm 21 15 19 19 20 15 18 18 19 15 19 18

The coal from Raspadskaya Koksovaya and from Tomusinskaya 5, 6 mines comprises KO and KC coals which are sold unwashed to Zapsib Plant. All the other production comprises GJ coal which is processed through the CPP. In the future this production of KO and KC coals will be processed through the new section. There is a contractual requirement to supply Run of Mine coal to Zapsib for 5 years from the date of purchase of the reserves associated with Tomusinskaya mine. 6.3 Plant Performance

Raspadskaya Preparation Plant appears to have been well engineered and incorporates a combination of good quality modern western and indigenous processing equipment which should provide reliable and efficient operation.

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The plant is a relatively new plant and in excellent condition. In January 2010, the plant achieved its greatest monthly throughput of 1,063,258 tonnes. This throughput was achieved with a plant availability of 71.8%. If this performance was maintained for 12 months consistently then an annual throughput of 13 million tonnes could be achieved. The plant has a total throughput capacity of 2400 tons per hour of 6 streams each of 400 tons per hour capacity. Assuming 7,200 hours of operation per year, which is being achieved by other new plants in the Kuzbas then we could expect a maximum rated throughput of 17.3 Mtpa. Given the likelihood of disruptions to delivery of empty wagons due to adverse weather conditions it is unlikely that plant availability in excess of 7,200 hours per year can be achieved. The historic performance of the plant over the last three years is shown in Table 6-2 below. Table 6-2 Year 2009 2010 2011 Historic Plant Performance ROM '000t 10,642 6,818 5,140 Saleable '000t 7,810 5,246 3,765 Ash% 8.4 8.3 8.8 Moisture% 8.7 8.4 8.5 Volatiles % 36.5 36.5 36.4 Plasticity (mm) 19.1 18.2 17.5 Sulphur % 0.64 0.69 0.73 Yield % 73.4 76.9 73.2

Table 6-3 below shows the operating parameters for the same three year period. Table 6-3 Historic Plant Operational Parameters Operational Parameter CPP cash cost per tonne of raw coal feed (USD) Average Number of Employees 2009 1.5 426 2010 2.5 447 2011 3.7 433

The plant operational costs have increased in the period from 2009 due to the reduction in throughput of the plant as a result of the mine accident in May 2010. In the expectation of returning to planned output levels, the level of manpower has been retained with manning levels reduced only by natural wastage. 6.4 Plant Modifications

The CPP is just completing the installation of new pressure plate filter presses. These plate presses are to replace the existing multi roll belt filter presses. The reason for the change is to reduce the moisture content of the concentrate. It is expected that the moisture content of the concentrate will be reduced by approximately 1.5%, from the current rate of 8.5% total moisture to 7.0%. This reduction in total moisture will bring the moisture content within the specified winter requirement of Russian Rail. 6.5 Future Plans

IMC understands that the Company will install the second pair of filter plate presses as funds become available. The support structure for the presses is already in position. It is also proposed that CPP 2 will be modified to increase throughput and also to change the product mix. 6.6 Infrastructure

6.6.1 Access There is a general road connecting the CPP with MUK 96 and Raspadsky Open Pit. Coal is delivered to the CPP by a combination of 40 t dump trucks and 20 t Kamaz trucks. The CPP has two loading rail lines at present with a third loading line planned. The Raspadskaya rail station has 10 lines for shunting and holding wagons. There is a single track line to Mezhdurechensk city. The line connects here with access east to Krasnoyarsk and west to Novokuznetsk.

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6.6.2 Electrical Power The CPP has a supply of 10 MVA at 6kV where the power consumption varies between 4 and 5.5 kWh/tonne depending on the plant load. Once completed in August 2012 the new power supply substation adjacent to No. 6 shaft site will provide the power for the CPP directly. 6.6.3 Water Supply Water for the CPP is supplied from Raspadskaya mine. Water from underground is piped to the plant at a rate of up to 70 m3 per hour through a 150 mm diameter pipeline. Excess water is delivered to the fire fighting storage facility and the remainder flows to the river. 6.6.4 Plant Workshops The main workshop is a building within the CPP building where all mechanical and electrical medium and small units are repaired. 6.6.5 Laboratory There is an on site laboratory, handling approximately 200 samples per day. The laboratory handles the raw samples and prepares them for analysis. Currently proximate analysis is carried out with calorific value and sulphur analysis. 6.7 Environmental Issues

6.7.1 Environmental and Social Status The CPP is located adjacent to the mine site of Raspadskaya within the Mezhdurechensk municipality. The CPP facilities include the main process building, a covered concentrate storage building, open run of mine coal stockpile, garage/parking area, loading facilities and waste rock bunkers. 6.7.2 Permitting and Compliance The Company holds all of the necessary environmental permits, details of which are summarised in Table 6-4 below. Table 6-4 Raspadskaya CPP Environmental Permits Document Permit for emission of polluting (harmful) substances into the air Emission threshold limit estimates Licence for collection, utilisation, neutralisation, transportation and disposal of waste of hazard classes 1-4 Waste generation standards and waste disposal limits Number and date of issue/approval No. 17/ atmMezh of 26.07.2011 20.12.2010 No. -68000622(42) of 20.09.2007 No. 10/ othMezh of 01.04.2011 Federal Agency for Environmental, Technological and Nuclear Supervision (Rostechnadzor) Federal Agency for Supervision over Natural Resource (Rosprirodnadzor) Issued/approved by Federal Agency for Supervision over Natural Resource (Rosprirodnadzor) Valid until 31 December 2015 31 December 2015 20 September 2012 20 September 2012

The Company is in compliance with the general conditions of these permits and the specified limits for air emissions and waste materials. 6.7.3 Potential Impacts and Control Measures 6.7.3.1 Air Emissions The coal preparation process is carried out mainly in the slurry phase and therefore only has a low potential for causing significant impact from air emissions. The potential sources of dust emissions are the coal unloading and loading operations, concentrate handling operations, wind blown dusting of stockpiles and the tailings dump. However these materials are usually moist and dusting is not a significant issue for most of the year. The main sources of potential dusting are equipped with either closed storage or dust suppression using water sprays is arranged when necessary.

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6.7.3.2 Water Use and Discharge The systems of Raspadskaya are used for the domestic and potable water supply and for treating the domestic waste water. The CPP process operates with a closed water circuit and fresh water is required to make up for losses due to evaporation and entrainment in the products. Treated water delivered from Raspadskaya is used for make-up. 6.7.3.3 Solid Waste Rock and tailings from coal processing are the main solid waste materials produced and in 2011 amounted to 1.439 Mt. CPP tailings are designated Class 5 non hazardous waste, as confirmed by technical studies and are stored on the site of a former open cast mine with an area of 87 ha. The site has sufficient capacity equivalent to least a further 15 years production of tailings. 6.7.4 Environmental Management The environmental department of Raspadskaya CPP includes 1 specialist reporting to the Department of Labour and Environmental Safety of Raspadskaya Coal Company and the Chief Engineer of Raspadskaya CPP. Environmental monitoring is arranged in compliance with the approved programme and includes: stationary emission sources; air quality at the sanitary protective zone boundary; soil monitoring; and waste storage sites.

Analyses of monitoring samples are conducted in certified third party laboratories. 6.7.5 Rehabilitation 6.7.5.1 Progressive Rehabilitation There are no progressive rehabilitation targets at Raspadskaya CPP. The tailings storage site will be in operation for another 15 years. 6.7.5.2 Closure Rehabilitation The priority rehabilitation target of Raspadskaya CPP will be the tailings storage site. At present, the design of the site arrangement is being developed. The site was previously owned by OAO Raspadskaya but the major part of the site was handed over to Raspadskaya CPP in 2011 for storage of tailings, which required adjustment of the site design. The site design documents contain plans of rehabilitation after closure. The rehabilitation costs are estimated regularly, also within the framework of the annual JORC reserves and resources valuation. According to the latest estimates, the cost of rehabilitation of the land disturbed in the course of Raspadskaya CPP operation is RuR 73.8 M. 6.7.6 Summary of Potential Risks and Liabilities There are no significant environmental risks associated with the current Raspadskaya CPP operation. However before 2015 it will be necessary to locate and receive permits for an alternative site for tailings disposal.

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MARKETING

The concentrate from Raspadskaya coal preparation plant is generally classified as a semi-hard coking coal with high volatiles. In a blend as a component with low/medium volatile coking coal it would be suitable for metallurgical coke production. At present, the Company produces mainly GZh grade coking coal from the Raspadskaya and MUK 96. Raspadskaya Koksovaya Field No. 1 provides K (coking) and KO (coking thin) grade ROM coals and as the longwall operations start in Field No. 2, K and KO grades concentrates will be produced. In 2011 the CPP produced and sold 3.76 Mt of concentrate and yet the plan is that the Company will produce and sell 12.8 Mt of coal within 3 to 4 years. 7.1 Russian Market

The Russian market is currently fully supplied with no new developments requiring an expansion of production. Additionally, the Russian market is more and more dominated by vertically integrated metallurgical companies owning their own reserves of coking coal and their own production facilities. In this environment it is difficult to maintain customers in the long term yet alone to increase sales. In 2010 Raspadskaya sold 5.354 Mt of concentrate which supplied the customers as shown in Table 7-1 below. Table 7-1 Customer Sales in 2010 Customer Concentrate Sales 000 t

Russia (5 Largest Customers) OJSC Koks Evraz Magnitogorsk MK Novolipetsky MK Mechel Export China Ukraine Republic of Korea 346 496 381 1,148 1057 750 587 318

7.2

Export Market

The export market is still an important sales area of Russian coking coal producers accounting for over 10 Mtpa In the long term future, the worldwide demand for coke and coking coals will be maintained because blast furnace technology will still remain as the main process for bulk production of steel and cast iron. Electrometallurgy and direct iron reduction techniques are being used only for production of high quality grade steel but cannot replace the blast furnace process due to the high prices of gas and electricity. Recently the international steel industry has been undergoing restructuring with a gradual transfer of coking plants from Europe to Asian countries for environmental reasons, which shifts the coking coal consuming centres to the developing world. The introduction of pulverised coal injection (PCI) has affected the consumption of coking coals as uses less valuable non-coking coals.

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7.2.1 Ukraine The main export market for Russian coking coals is Ukraine (50% of export shipment). Raspadskaya has historically been a leader in the coking coal market of the Ukraine. The coking coal consumption level will depend on both market for finished metal and the economic situation in Ukraine. 7.2.2 China The Chinese market is extremely important in the longer term because of the increasing amounts of imports that China requires to fuel its ever expanding steel production. In 2002 Chinese imports of coking coal amounted to only 256 kt, while in 2010 they had reached 47.3 Mt. In 2011 imports were running at approximately the same level as in 2010. Russian coal imports in 2010 amounted to 10% of total Chinese imports but in 2011 this fell back considerably. The fastest growing sector of Chinese imports is from Mongolia and in volume terms Mongolia is now responsible for 40% of Chinese coking coal imports. Mongolian imports have grown as a direct replacement of material from Russia. It appears unlikely that Raspadskaya coal would be considered to be a replacement for Australian coking coal and not as an alternative to coking coal from Mongolia. Obviously the Mongolian supplies have a considerable advantage because of their proximity to the main internal Chinese markets for coking coal based around the city of Wuhai. The current base price for hard coking coal in the Wuhai area is approximately US$265 pmt, whereas the price basis for Australian hard coking coal is fob Australian port and current prices are around US$285 pmt. Coal transport cost pmt within China are published as being RMB 0.25 /tkm. The development of future steel production investment will be concentrated in inland provinces according to government published plans. The Russians are discovering that marketing coal on the international market is different to the local Russian market and somewhat more problematic. 7.2.3 Japan The Japanese import 10 Mt of coking coal every month for their steel mills. While it is difficult to deal with the Japanese and the Russian approach is not particularly conducive to establishing a good trading relationship with the Japanese, in reality this is the only viable alternative. 7.3 Conclusion

IMC understand that the long term strategy of the Company is to sell up to 6.4 Mtpa of GZh and GZhO grade concentrate to the domestic market and 0.9 to 1.5 Mt on the Ukrainian market. The concentrate of K and KO grades will be sold on the domestic market. If production is to increase and be maintained at 18 Mt ROM with sales at 12 Mt then there has to be sales of an extra 7 Mt from new customers. The majority of these sales need to be on long term contracts to give a stable cashflow. The only customer large enough and with a stable market to fulfil that role is Japan or possibly India, though only as a future prospect.

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SPECIAL FACTORS

Risks likely to impact on the Companys forecast production, capital and operating costs by less than 10% are not considered significant. Any significant risks not adequately addressed in the Companys production plans are considered to be material and are listed as Special Factors. Risk Operating costs have increased substantially over the last 3 years of the IMC review. This is primarily down to the influence of world prices for steel, oil, gas, electricity and other oil/energy related products. Salary increases for all employees is generally in line with this general level of inflation and have shown a large escalation over the last 3 years.

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CONCLUSIONS

IMC concludes from the independent technical review that: managements geological and geotechnical knowledge and understanding is of a satisfactory level to support short, medium and long term planning as appropriate and operations are well managed at an operating level; the mine plans appropriately consider geological and geotechnical factors to minimise mining hazards; the Companys mining equipment (either in place or planned in the capital forecasts) is suited to its mine plans and is adequate, with minor adjustments, for the production plans; coal processing and other infrastructure are capable of continuing to supply appropriate quality products to the markets at the forecast production plans; After conversion to the international format the LTIFR can be seen to be better than other comparable operations before and after the explosion. The LTISR is also better in the years before and after the explosion. The Company has lost 91 people in an explosion but are to be commended on the approach that has been adopted to rehabilitate the mine and the initiatives that have in introduced; environmental issues are managed and there are no issues that could materially impede production nor are any prosecutions pending; the assumptions used in estimating both capital and operating costs are appropriate and reasonable; capital and operating costs used in the financial models incorporating minor adjustments by IMC reflect the mine plans, development and construction schedules and the forecast production levels; special factors identified by IMC are well understood by management and appropriate action to mitigate these risks is being taken. Further, the mine plans and cost forecasts appropriately account for these risks; and management operates a management accounting system and are able to monitor and forecast production and cost parameters. Management use accounting systems to IFRS standards.

IMC has estimated the value of OAO Raspadskaya coal assets at a post tax level as US$ 7,027 million assuming a real discount rate of 10.49%, an exchange rate of RuR/US$ 31.00 and product prices, capital and operating costs and production forecasts which are soundly based.

Yours Faithfully,

IMC Group Consulting Ltd Icon Business Centre Lake View Drive Sherwood Park Nottinghamshire NG15 0DT United Kingdom John S Warwick B Sc (Hons) FIMMM, C Eng, Eur Ing

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DISTRIBUTION LIST COMPETENT PERSONS REPORT ON MINING ASSETS COPY No. Copies of this report have been distributed as shown below: Copy No. 1 2 3 4 Type Original Copy Copy Copy Electronic Recipient OAO Raspadskaya OAO Raspadskaya OAO Raspadskaya IMC Group Consulting Ltd

Project Personnel: J Warwick (Project Director), P Robinson (Financial Analyst), A Zhura (Financial Analyst) Mike George (Environmental), M Solova (Environmental) A Semenov (Mining Engineer), A Pokusaev (Geologist), P Lambert (Processing) Key Words: Russian Federation, Coal, Coking Coal, Ash, Moisture, Due Diligence, CPR Signature Name / Designation

Production:

John Warwick Project Director

Verification:

Peter Robinson Project Manager

Approval:

John Warwick Project Director

Date:

30th March 2012

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APPENDIX A QUALIFICATIONS OF THE CONSULTANTS

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*J S Warwick Project Director and Mining Engineer B Sc Electrical Engineering (Hons), Newcastle University (1973); B Sc Mining Engineering (Hons), Nottingham University (1975); Mine Manager's 1st Class Certificate; Fellow Institute of Materials, Minerals and Mining; Chartered Engineer; European Engineer (Eur Ing). 40 years experience in the coal, base metals and industrial minerals mining industry and 10 years of directing Competent Persons and Mineral Experts Reports. He is qualified under the provisions of the ESMA guidelines Section 133 (i) (a) and in particular both subsections (1) and (2) as a Competent Person under the requirements of the JORC Code. *P C Robinson Project Manager and Financial Analyst Associate, Chartered Institute of Management Accountants 30 years experience in the mining, minerals and consulting industry worldwide with specific experience of investment and mine purchases, project management, production of a competent persons report in support of a flotation on major stock exchanges for major companies. *Alexey Zhura Financial Analyst PhD (Economics); Aleksey Zhura is a specialist in marketing, logistics and the economics of mining. He graduated from Moscow State Mining University and has 12 years of experience. Working for the Coal Market Research Institute (Moscow), Aleksey was engaged in the analysis of raw materials supply to coal preparation and steel-making plants and conducted research on thermal and coking coal markets. Aleksey developed investment projects for underground mines and open-pits and construction of coal handling facilities when he worked for Sokolovskaya Holding Company, which incorporated a coal transport company, mining and coal preparation assets and machine manufacturing businesses. *Alexander Pokusaev Geologist Alexander Pokusaev graduated from geological exploration department of Tomsk Polytechnic Institute and specialized in geophysical prospecting of mineral deposits. He worked in geological exploration, geological geochemical teams, drilling and mining companies in Kazakhstan (e.g. OAO Zhairemsky GOK), Armenia and DR of Congo, and in mining consultancies in Kazakhstan. He was engaged in prospecting and reserve estimation of copper, gold and polymetal deposits in Kazakhstan and Armenia; managed teams and participated in multi-disciplinary geologic-geophysical and prospecting and exploration operations in ore deposits, as well as in processing of geological, geophysical and geochemical data with some elements of prediction of copper, gold and base metal deposits; participated in multi-disciplinary geologic-geophysical prospecting of copper, molybdenum and polymetal deposits. He was Involved in compiling a geochemical library of primary and secondary geochemical haloes of copper and base metal deposits in Central Kazakhstan. He is experienced in field geophysics and interpretation of magnetic and gravimetric surveys, and electric survey methods and downthe-hole-geophysics; Experienced in geological database development and modelling. *M George Environmental Engineer BSc (Hons) in Applied Chemistry, Kingston-upon-Thames University (1971); Specialist courses in Hydrometallurgy, Solvent Extraction, Management in Industry, Assessment of Competence in Process Operations, Radiological Protection Supervision, Environmental and Safety Auditing, Health and Safety at Work Regulations, COSHH (Control of Substances Hazardous to Health) Assessment, Integrated Pollution Control. 30 years experience in base metals processing including environmental aspects and specialising in the environmental field for the last 5 years. *M Sokolova Environmental Engineer Graduate of Moscow Geological Exploration Academy and is a certified engineer specializing in eco-geology. She has 11 years experience in the area of environmental protection. From 2000 to 2008 she worked in the Monitoring and Forecast Centre at the RF Emergency Committee and held position of the main specialist at the Environmental Emergencies Monitoring Division. There she acquired Russia-wide work experience in the area of environmental protection, including the area of environmental safety at industrial enterprises. Currently she

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takes part in projects making environment impact assessments and assessment of compliance of the mine operations with the local Environmental Law and international standards. *P Lambert Process Engineer B Sc Mining Engineering, Mineral Technology Option, (Hons), Royal School of Mines (1974); Associate of the Royal School of Mines (1974); Member Institute of Materials, Minerals and Mining; Chartered Engineer. 36 years experience in the coal mining industry and waste recycling industry. Peter Lambert is a Competent Person under the requirements of the JORC Code.

* - denotes visited operations

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APPENDIX B SCOPE OF WORK, MATERIALITY & LIMITATIONS

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Scope of Work IMC carried out the following scope of work which satisfies the requirements of a Competent Persons Report as set out in the European Commissions Regulation on Prospectuses No. 809/2004 in conjunction with the recommendations of the CESR updated with the ESMA guidelines of March 2011, the requirements the Prospectus Rules and the listing requirements of the Irish Stock Exchange. The format of the report and its contents comply with the requirements of Appendix 2 of the ESMA guidelines. Introductory meetings with the Company directors and management to understand the business plan; Site visits and collection of data. Consultants marked with an asterisk (*) in Appendix A visited the assets relevant to their disciplines and inspected: o Geological maps, plans and sections; o Mining operations and equipment; o the Company, coal processing plant; o Infrastructure including transport systems and maintenance facilities; and o Environmental aspects of the operational sites. Data and documentation was supplied to IMC personnel at the Mine offices and financial data from the Company headquarters. This included: o Historical production and costs on an annual basis; o Budgets and plans; and o Project studies. A technical review was undertaken at each asset including the following elements: o Data suitability; o Geology and mining hazards; o Resources and reserves; o Coal mining operations; o Coal processing to concentrates; o Infrastructure; o Environmental issues; o Capital and operating costs; o Review of budget forecasts; and o Valuation of reserves.

In accordance with the requirement is the ESMA guidelines, IMC has included a valuation its report. The valuation model is based on actual 2009 to 2011 production and financial data and the Companys 2012 to 2093 budget data.

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APPENDIX C MAPS AND PLANS

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Mine MUK-96

A-85

Seam 7-7

A-86

Seam 10

A-87

Seam 11

A-88

Seam 15

A-89

Open Cast Raspadskiy

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End 2016

A-91

End 2022

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End 2032

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Mine Raspadskaya-Koksovaya

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Seam III (slice 1)

A-95

Seam IV (slice 1)

A-96

Seam IV-V (slice 1)

A-97

Seam IV-V (slice 2)

A-98

Seam IV-V (Upper slice)

A-99

Seam IV-V (Bottom slice)

A-100

Mine Raspadskaya

A-101

Seam 3-3a

A-102

Seam 6-6a

A-103

Seam 7-7a

A-104

Seam 9, 9-10

A-105

Seam 10

A-106

Seam 11

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APPENDIX D GLOSSARY OF TERMS

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$ $M ADB AFT

Air Dried Basis Air pollution.

Ambient air. Anhydrous ANFO Anhydrous Anthracite, Anthracitic

Anticline Aquifer

Arch centres Ash

Ash Analysis Ash content Ash free Backfilling Background level

Backhoe excavator Bank cubic metre, (bcm) bcm bcm/hr bcm/t Bench Best Practice

United States Dollars Million United States Dollars Air dried basis, analysis of coal where by coal is air dried at ambient temperatures leaving the inherent moisture within the coal. Ash fusion temperature A physical measurement of the temperature at which a cone of ash begins to soften, deform and flow. This is performed under either an oxidising or reducing atmosphere. Temperatures are reported as Initial deformation, spherical, hemispherical and flow. Air dried basis, analysis of coal where by coal is air dried at ambient temperatures leaving the inherent moisture within the coal. The presence of contaminant or pollutant substances in the air that do not disperse properly and interfere with human health or welfare or produce other harmful environmental effects. Any unconfined portion of the atmosphere: open air, surrounding air. Coals that have a lower than normal amount of hydrogen in the coal. Caused by either high inertinite content or weak oxidation of the vitrinite component of the coal. Amrnonium nitrate fuel oil (diesel) slurry explosive Coals that have a lower than normal amount of hydrogen in the coal. Caused by either high inertinite content or weak oxidation of the vitrinite component of the coal. A rank class of coal having more than 86% fixed carbon and less than 14% volatile matter on a dry, mineral-matter-free basis (as defined by ASTM). This class of coal is sub-divided into semi-anthracite, anthracite and meta-anthracite on the basis of increasing fixed carbon and decreasing volatile matter. A strata fold that is concave downwards. 1. An underground geological formation, or group of formations, containing usable amounts of groundwater that can supply wells and springs. 2. A body of rock that is sufficiently permeable to conduct ground water and to yield significant quantities of water to boreholes which intersect it. Spacing between arch supports set in a roadway The incombustible residue from mineral matter contained as either contamination (rocks) or inherent within the coal. On combustion the mineral matter is reduced to ash the refractory component of mineral matter. Some minerals dissociate on heating to release carbon dioxide or moisture. Analysis of the ash for the major components such as silica, alumina, calcium, magnesium, potassium, sodium, titanium, manganese. The percentage of a laboratory sample of coal remaining after incineration to a constant weight under standard conditions. A theoretical analysis calculated from basic data expressed as if the total ash had been removed. The operation of depositing waste into a previously mined out void In air pollution control, the concentration of air pollutants in a definite area during a fixed period of time prior to the starting up or on the stoppage of a source of emission under control. In toxic substances monitoring, the average presence in the environment, originally referring to naturally occurring phenomena. A diesel-powered, caterpillar tracked excavator with a back-acting bucket, primarily designed to excavate material from below the level upon which the machine is situated. One cubic metre of in-situ undisturbed rock (coal or overburden). Abbreviation for bank cubic meter being the volume of material measured in-situ before excavation Abbreviation for bank cubic meter per hour Abbreviation for bank cubic meter per tonne - the unit for stripping ratio qv A near horizontal working area in a mine at least one side of which is defined by a significant vertical drop Operating procedures that are recognised in the international mining community which maximise productivity and return on investment commensurate with stewardship of the assets.

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Billion Biochemical oxygen demand (BOD) Bituminous coal

One thousand million. A measure of the amount of oxygen consumed in the biological processes that break down organic matter in water. The greater the BOD, the greater the degree of pollution. A class of coal high in carbonaceous matter, having less than 86% fixed carbon, and more than 14% volatile matter on a dry mineral-matter-free basis, (as defined by the American Society for Testing and Materials (ASTM)). Mixing two or more materials together to give a mixture of the desired quality Roadways that are supported using full column resin bolts (a drill hole filled with quick setting resin and through which a steel rod is rotated to mix resin and hardener) The use of drilling and blasting mining techniques rather than mechanised methods. A hole made with a drill, auger or other tool for exploring strata in search of minerals. Productive capacity that can be readily increased without the need for major capital injection. The cubic capacity of an excavators bucket calculated in a prescribed manner A factor to adjust bucket capacity to what the bucket actually holds A small tractor with a bucket to load out the material blasted and carry it to t tipping point. Often the buckets are side-tipping to facilitate working in confined areas. Switchgear electrical current connecting conductors Cost and Freight a term of sale that includes the FOB (qv) price plus the cost of freight, insurance is normally paid by the buyer. The heat value of coal per unit weight. This is normally reported in kilocalories per kilogram, (kcal/kg). Capital expenditure Geological Period in which the coal basins of northern Europe were formed. The sum of cash generated and spent by a business, usually computed on an annual basis. Methane A measure of the oxygen required to oxidize all compounds in water, both organic and inorganic. Any one of a variety of technologies that use chemicals or a variety of chemical processes to treat waste. A term of sale that includes the FOB (qv) price plus the cost of freight and the cost of cargo insurance. Actions taken to deal with a release or threat of release of a hazardous substance that could affect humans, the environment, or both. The term is sometimes used interchangeably with the terms remedial action, removal action, response action, or corrective action. A readily combustible rock containing more than 50% by weight and 70% by volume of carbonaceous material, including inherent moisture. It is formed from plant remains that have been compacted, indurated, chemically altered and metamorphosed by heat and pressure during geological time. The process of removing mineral matter from coal usually through density separation, for coarser coal and using surface chemistry for finer particles. A discrete area underlain by strata containing one or more coal beds. The act of extracting coal Coal that becomes plastic when heated at 3C per minute through the temperature range 300 550 C. Reduction of the bulk of solid waste by rolling and tamping. The natural biological decomposition of organic material in the presence of air to form a humus-like material. Any physical, chemical, biological, or radiological substance or matter that has an adverse affect on air, water, or soil. A furnace in which air is blown through a bath of molten metal or matte, oxidizing the

Blending Bolted roadways Bore and fire techniques Borehole Brownfield Bucket capacity Bucket fill factor Bucket loaders Bus bars C&F Calorific value, (CV) Capex Carboniferous Cash Flow CH4 Chemical oxygen demand (COD) Chemical treatment Cif Cost Insurance Freight Cleanup

Coal

Coal Washing Coalfield Coaling Coking coal Compaction Composting Contaminant Converter

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Core Correlate, Correlation Cost per Pound Cover material CRI Cross Section Crush, Crushing, Crushed Crusher CSR

impurities and maintaining the temperature through the heat produced by the oxidation reaction. A cylindrical sample taken using a diamond drill. Demonstration of the apparent continuity of a coal bed between control, measurement, or sampling points by showing correspondence in character and stratigraphic position. A measure of the cost of producing a pound of material, calculated by dividing the costs in a period by the total material production over the same period. Soil used to cover compacted solid waste in a sanitary landfill. Coke reactivity index measures the percentage of coke lost during reaction with CO2 at 1100 C, reactivity in the range 20 25 are considered acceptable. A diagram or drawing that shows features transected by a vertical plane drawn at right angles to the longer axis of a geologic feature. A mechanical method of reducing the size of rock.

Curtilage Cut-off Grade

CV DAF DB DDPM

Decomposition Dense Medium Dense medium cyclones Dense Medium Separation (DMS) Deposit Destressed zone Dilution Dilution Dip Dip(s) referring to reef or geology Discount Rate Discounted Cash Flows (DCF) Disposal

A machine for crushing rock. Coke Strength after Reactivity, the strength of coke after it has been reacted with CO2 at 1100C for 20 minutes. Coals with high reactivity produce weak cokes indicated by a low CSR. Good CSR is in the range of 60 70, low CSR is 50 60 and poor CSR is < 50. The area within which a mining company has legal responsibility for its own activities The lowest grade of mineralised material considered economic to extract; used in the calculation of the ore reserves in a given deposit, and in operations to segregate ore and waste. see calorific value Dry ash free basis conversion of analyses to present data that has all ash and moisture removed, i.e. represents the analysis of the organic matter only. Dry basis, analysis of coal where-by the coal is dried at 105 C before proximate analyses are undertaken Dial Divisions per minute. A measure of the plastic properties of a coking coal. Often referred to as the Gieseler Fluidity. 100 dial divisions per minute is equal to 1 revolution of a paddle in a mass of coal. A constant torque is applied to the paddle. The breakdown of matter by bacteria and fungi; changes the chemical makeup and physical appearance of materials. A liquid composed of a suspension of magnetite in water that gives a very accurate separation A device the uses a dense medium in a hydrocyclone to effect a separation between coal and waste The separation of heavy , sinking mineral particles from light, floating mineral particles in a fluid of intermediate density. An area of coal resources or reserves identified by surface mapping, drilling or development. Area previously mined in which the pressure from the rock is no longer applied. The contamination during the mining process of excavated ore by non-ore material from the roof, floor or in-seam partings Waste which is intermingled with ore in the mining process. The angle that a structural surface, i.e. a bedding or fault plane makes with the horizontal measured perpendicular to the strike of the structure. The angle at which a reef, stratum, vein seam or bed is inclined from the horizontal.

The interest rate at which the present value, if compounded, will yield a cash flow in the future. The present value of future cash flows.

Final placement or destruction of toxic, radioactive, or other wastes; surplus or banned

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Disseminated Dissolved solids Down-Dip Drewboys Drillhole Drivages Down-Dip Dump Dumper Ecosystem Effluent Emission

Emission standard Environment Environmental assessment (EA)

Environmental audit Exploit Exploitation Exploration Fault Fault Throw Feasibility Study

pesticides or other chemicals; polluted soils; and drums containing hazardous materials from removal actions or accidental releases. A mineral deposit in which minerals occur as scattered particles in the rock. Disintegrated organic and inorganic material contained in water. Excessive amounts make water unfit for drinking or for use in industrial processes. Parallel to or in the general direction of the dip of the reef, stratum, vein seam or bed. A dense medium bath separator wherein a rotating wheel extracts the sinks A circular hole made in rock, often in conjunction with a core barrel in order to obtain a core sample. Any development excavation. Parallel to or in the general direction of the dip of the reef, stratum, vein seam or bed. A site used to dispose of solid wastes without environmental controls. An off-highway, rear dump, haul truck which may be either rigid framed or articulated The interacting system of a biological community and its nonliving environmental surroundings. Wastewatertreated or untreated that flows out of a treatment plant, sewer, or industrial outfall; generally refers to wastes discharged into surface waters. Pollution discharged into the atmosphere from smokestacks, other vents, and surface areas of commercial or industrial facilities, from residential chimneys; and from motor vehicle, locomotive, or aircraft exhausts. The maximum amount of air polluting discharge legally allowed from a single source, mobile or stationary. The sum of all external conditions affecting the life, development, and survival of an organism. A process whose breadth, depth, and type of analysis depend on the proposed project. EA evaluates a projects potential environmental risks and impacts in its area of influence and identifies ways of improving project design and implementation by preventing, minimizing, mitigating, or compensating for adverse environmental impacts and by enhancing positive impacts. 1. An independent assessment of the current status of a partys compliance with applicable environmental requirements. 2. An independent evaluation of a partys environmental compliance policies, practices, and controls. Make use of and derive benefit from a resource Method of deriving benefit from a resource The search for mineral. Prospecting, sampling, mapping, diamond drilling and other work involved in the search for mineralisation. A structural discontinuity in the earth's crust formed by movement between adjacent blocks resulting from tectonic forces. The amount of vertical displacement in an upward or downward direction produced by a fault. A comprehensive engineering estimate of all costs, revenues, equipment requirements and production levels likely to be achieved if a mine is developed. The study is used to define the technical and economic viability of a project and to support the search for project financing. The solid residue, other than ash, obtained by destructive distillation of a coal sample, determined by definite prescribed methods. Flame proof enclosure (electrical) Non-combustible residual particles from the combustion process carried by flue gas. Free on board refers to payment terms where the price negotiated is free of any charges until the coal is on-board of the vessel. as FOB except that the cargo is also trimmed, i.e. free-on-board-trimmed. Any bending or wrinkling of rock strata. Free on Rail - refers to payment terms where the price negotiated is free of any charges until the coal is on-board the railway wagon at a nominated site. Free on truck refers to payment terms where the price negotiated is free of any charges until the coal is on-board the truck at a nominated site.

Fixed carbon FLP Fly ash FOB FOBT Fold FOR FOT

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FSI FSU ft GEB Geological assurance

Geological losses Geotechnical Conditions Grab Sample Grade Grader Gross Asreceived Groundwater

Free swelling index, a measure of the amount of swelling a coal under goes on rapid heating. Former Soviet Union Foot Explosion proof electrical contactor starter/distribution gear The state of sureness, confidence, or certainty of the existence of a quantity of resources based on the distance from points where coal is measured or sampled, and on the abundance and quality of geological data as related to thickness of overburden, rank, quality, thickness of coal, areal extent, structure, and the correlation of coal beds and their enclosing rocks. The degree of geological assurance increases as the nearness to points of control, abundance, and quality of data increases. Losses deducted from proven reserves due to geological constraints, eg faults, seam splitting. The engineering behaviour of rocks as a result of an excavation. samples taken manually The relative quality or percentage of metal content. A rubber-tyred, diesel driven, mobile machine with an under-slung blade used for regulating the surface of dirt roads and the like Refers to ash, moisture, volatile matter, calorific value and sulphur of coal including all moisture, both surface and inherent. The supply of fresh water found beneath the Earths surface (usually in aquifers), which is often used for supplying wells and springs. Because groundwater is a major source of drinking water, there is growing concern about areas where leaching agricultural or industrial pollutants or substances from leaking underground storage tanks are contaminating it. A vessel of 30,000 50,000 tonne carrying capacity that is usually fitted with gear. A vessel of 20,000 to 30,000 tonne carrying capacity that is usually fitted with gear. The wall or rock on the upper side of the inclined orebody (the roof). A coking coal that when coked produces a hard and unreactive coke. A self propelled vehicle used to transport material. By-products of society that can pose a substantial or potential hazard to human health or the environment when improperly managed. Substances classified as hazardous wastes possess at least one of four characteristics ignitability, corrosivity, reactivity, or toxicityor appear on special lists. The coke that is less than 80 mm and greater than 3 mm, generally used in chemical plants and cement plants and as a smokeless fuel. Hardgrove Grindability Index A measure of the ease with which a coal can be reduced by grinding. Coals with a low HGI are hard and difficult to grind and coals with a high HGI are normally friable and soft. Coal containing more than 15% total ash on an as-received basis. Cyclones using water based material The science dealing with the properties, distribution, and circulation of water. A filter for dewatering fine coal slurries that uses high pressure Hertz, frequency In place, i.e. within unbroken rock. Categories of virgin reserves having a moderate degree of geological assurance. Includes all coal conforming to the thickness and depth limits defined in the reserve base, and for which known data points are not more than 2000m apart. Categories of virgin reserves having a low degree of geological assurance. See mineral potential That moisture held within the internal porosity of the coal. It is the moisture released after

Handi-max Handi-size Hangingwall Hard coking coal Haul Truck Hazardous wastes

Heating coke HGI

High-ash coal Hydrocyclones Hydrology Hyperbaric filter Hz In Situ Indicated reserves Indicated Reserves Inferred reserves Inferred Resources Inherent

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Moisture Interburden Intrusion Jaw crusher Jaw Crusher Jig Joints - relating to geology Kcal/kg

km kPa kt ktpa kV kVA kVAr kW kWh kWh Lease Level Lignite, lignitic Liner

LOM Loose cubic metre, (lcm) Losses Geological Losses - Mining LT LTIFR M Macerals

air dying of the coal at 20 C when the coal is heated to 105C. Low rank coals have high inherent moisture and high rank coals have low inherent moisture. Sterile soil and rock material lying between coal seams Any injection of igneous material into country rock. A crusher that crushes material between two plates A crusher with a moving plate which is used in an assay laboratory to reduce core to approximately 6 mm pieces. A separator that uses pulsating water to separate coal from waste; less accurate that dense medium A fracture or parting that cuts through and abruptly interrupts the physical continuity of a rock mass. Kilocalories per kilogram of coal, the energy content of coal used in the countries that do not conform to SI units. In countries where SI units are adhered to, the measure of energy is in megajoules per kilogram or MJ/kg. Kilometre kilo Pascals Thousand metric tonnes Thousand metric tonnes per year kilo Volt Kilo Volt Amperes Kilo volt - reactive/compensating Kilo Watts power rating kilowatt hour lb pound Kilowatt hour Contract between two parties enabling one to search for and/or produce minerals from the other's property. The workings or tunnels of an underground mine which are on the same horizontal plane. Level numbers usually designate depth below the shaft collar. A class of brownish-black, low-rank coal, defined by ASTM as having a heat value of less than 4,600 kcal/kg on a moist mineral-matter-free basis. 1. A relatively impermeable barrier designed to prevent leachate from leaking from a landfill. Liner materials include plastic and dense clay. 2. An insert or sleeve for sewer pipes to prevent leakage or infiltration. Life of Mine One cubic metre of overburden or interburden after blasting or excavation. Ore lost due to unpredictable geological phenomena. Ore lost due to less than perfect mining operations. Low tension distribution voltage Lost Time Injury Frequency Rate, usually measured per 100,000 manshifts or one million man-hours Million Organic components of coal, normally recognised by microscope, related to the precursors of coal, wood (vitrinite), inertinite (charcoal and rotted wood) and liptinite (leaves, spores and resins). Not very important when considering thermal coal, but important when considering coking coal. A matrix of markets and prices over a given number of years. Million bank cubic metres MLA Mining Licence Area Categories of accessed and virgin reserves having the highest degree of geological assurance. The tonnages of in situ coal contained in seams or sections of seams for which sufficient information is available to enable detailed or conceptual mine planning.

Marketing Matrix Mbcm Measured reserves Measured Reserves

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Measured resources Mechanised Mining Metallurgical coal

Identified bodies of virgin coal reserves having a high degree of geological assurance. Mining operations which are partly or fully conducted using machines powered by electricity or diesel fuel. An informally recognised name for bituminous coal that is suitable for making coke by industries that refine, smelt and work with iron. Generally, this coal will have less than 1% sulphur and less than 8% ash on an air-dried basis. Metallurgical coal is sometimes referred to as coking coal. The process of drilling long holes into the coal/roof over and above the coal in advance of mining to extract the methane. Material containing mineralisation of a poor quality that is uneconomic. Coal of inferior quality The grade of material feed to the mill, equivalent to received at mill. A government authority supervising the implementation of occupational safety and health in mines 1. Capable of being mined under current mining technology and environmental and legal restrictions, rules and regulations. 2. That portion of a resource for which extraction is technically and economically feasible. A railway truck underground. An area where all economic material has been extracted. A mineral occurrence of sufficient size and grade to have potential or existing commercial value; sometimes referred to as mineralisation. The solid inorganic material in coal. A portion of a mineral occurrence which is not well known, and for which tonnage and grade estimates may be unreliable. The ownership of the minerals on or under a given surface with the right to remove the said minerals. Any mass of host rock in which minerals of potential commercial value occur. Permission to mine minerals from a Mineral Rights area. Permission to mine minerals from a Mineral Rights area. Measures taken to reduce adverse impacts on the environment. Cross sectional area of phase conductor The percentage of moisture (water) in coal. Two forms of moisture are found in coal, free or surface moisture that evaporates on exposure to air, and inherent moisture entrapped in the coal, which can only be removed by heating. Periodic or continuous surveillance or testing to determine the level of compliance with statutory requirements or pollutant levels in various media or in humans, animals, and other living things. Million metric tonnes Medium tension distribution voltage Million tons per annum Working more than one seam in the formation. Mega Volt Mega Volt Amps Megawatt Middle division of the Carboniferous Period in Europe. Refers to the gross as-received calorific value of a coal after the energy required to vaporise the moisture and moisture formed from combustion of any hydrogen is removed. The present value of the net cashflow of the operation, discounted at a rate, which reflects a combination of the cost of capital of the company and the perceived risk attaching to the project or operation. Decreasing the acidity or alkalinity of a substance by adding to it alkaline or acidic materials, respectively. Not In Use

Methane drainage Middling Middlings Mill Feed Grade Mine inspector Mineable

Minecars Mined-out Mineral Deposit Mineral matter Mineral Potential Mineral Rights Mineralisation Mining Licence Mining Permit Mitigation mm2 Moisture content Monitoring

Mt MT Mtpa Multi-seam working MV MVA MW Namurian Net as-received Net present value, (NPV) Neutralization NIU

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No. Nos. OHL Open Pit Open Pit Mine Opex Ore Organic sulphur Original resources Orogeny, Orogenic Outfall Overburden Oxide P&G Pa Panamax

PCI

Perhydrous

Permeability Permit

PF pH Phosphates Picking belt Pillar(s) Pillars Pit plc Pollutant Polychlorinated biphenyls (PCBs) Potable water ppm/ppb

Number Numbers Over Head Line Surface mining in which the ore is extracted from a pit. The geometry of the pit may vary with the characteristics of the orebody. A mine working or excavation open to the surface where material is not replaced into the mined out areas. Operating expediture Material that contains one or more minerals, at least one of which has commercial value and which can be recovered at a profit. That sulphur that is contained within hydrocarbon molecules and is an integral part of the coal matrix. The amount of coal in-situ before production. Where mining has occurred, the total of original resources is the sum of the identified resources, undiscovered resources, coal produced, and coal lost in mining. Mountain building episode in geological history caused by relative movements between two adjacent crustal plates. The place where an effluent is discharged into receiving waters. Sterile soil and rock material overlying the coal That portion of a mineral deposit within which all or the majority of sulphide minerals have been oxidised, usually by surficial weathering processes. Preliminary and general Pascal unit of pressure A vessel of the maximum size possible to fit through the Panama Canal. Normally refers to a vessel of 220 metres length and 32 metre beam that carries about 60,000 tonnes of coal on about 12.5 metres draught. Pulverised Coal Injection A method used by blast furnace steel makers to reduce consumption of coke at the base of the blast furnace through the grinding and firing of coal into the base of the furnace to provide heat and CO and CO2. The latter is reduced to CO on contact with carbon from coke and the CO is used as the reductant in a blast furnace. Coals that have a higher than normal (5% dry ash free for bituminous coals) amount of hydrogen in the coal. This can be caused by high liptinite content or highly degraded vitrinite (bacterial degradation). The rate at which liquids pass through soil or other materials in a specified direction. An authorization, license, or equivalent control document issued by an approved agency to implement the requirements of an environmental regulation; e.g., a permit to operate a wastewater treatment plant or to operate a facility that may generate harmful emissions. Pulverised fuel thermal coal that has been ground to 75% passing 80 microns (80 millionths of a metre), is then fired into a combustion chamber and burnt very quickly. Logarithm of the reciprocal of hydrogen concentration in moles/litre, giving a measure of acidity or alkalinity Certain chemical compounds containing phosphorus. A flat belt conveyor used for manual removal of unwanted material An area of ore left during mining to support the overlying strata or hanging wall in a mine. Blocks of ore left intact to act as support for shafts or other underground workings. Post pillars are equi-dimensional in plan. A hole in the ground an excavation below original ground level a surface mine may comprise one or more pits Public limited company Generally, the presence of matter or energy whose nature, location, or quantity produces A group of toxic, persistent chemicals used in transformers and capacitators for insulating purposes and in gas pipeline systems as a lubricant Water that is safe for drinking and cooking. Parts per million/parts per billion, a way of expressing tiny concentrations of pollutants in air, water, soil, human tissue, and food and or other products.

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Precambrian Pre-Feasibility Planning Study Pre-treatment Prevention Probable Reserves Profile of the heading Prospect Prospecting Licence Prospecting Permit Proved Reserves Proximate analysis Pulveriser Purchaser Pyrite Pyritic sulphur

All geological time and the corresponding rocks before the beginning of the Paleozoic Era (i.e. older than approximately 570 million years). A study with an overall accuracy of +/- 25%. Processes used to reduce, eliminate, or alter the nature of wastewater pollutants from nondomestic sources before they are discharged into publicly owned treatment works. Measures taken to minimize the release of wastes to the environment. Those reserves which are the economically mineable part of the Indicated Reserves Internal shape of a heading A mineral deposit with insufficient data available on the mineralisation to determine if it is economically recoverable, but warranting further investigation. An area for which permission to explore has been granted. Permission to prospect for minerals from a Mineral Rights area. Those reserves which are the economically mineable part of the Measured Reserves A simple analysis of coal that utilises the high temperature disintegration of coal into moisture, volatile matter, fixed carbon (char or coke) and ash. A device used in an assay laboratory to reduce rolls crushed feed to 0.1 mm grains A sole-purpose company which is acquiring the Assets. A brassy-coloured mineral of iron sulphide (containing 53 percent sulphur): All that sulphur contained within iron sulphur minerals such as pyrrhotite, pyrite, marcasite, generally represented a (FeS2). The mineral pyrite is generally formed as a secondary mineral after the formation of the coal. Pyrite is often a source of acidic water when oxidised in the presence of air. Pyritic sulphur can be removed by gravity separation. An Open Pit Mine. A mineral compound of silicon and oxygen, generally white-coloured to transparent. A measure of thermal maturity of a coal. Coal increases rank from peat through to graphite by the application of heat and time. Increasing rank of coal is from lignite, through subbituminous coal, through bituminous coal, through anthracite to graphite. The process is a series of condensation reactions whereby initially water is expelled from the coal, then carboxyl groups are expelled then gas and liquids are expelled and finally methane. During this process the inherent moisture reduces, volatile matter reduces and energy content of the hydrocarbon part of the coal increases. Untreated wastewater. A river, lake, ocean, stream, or other watercourse into which wastewater or treated effluent is discharged. When applied to reserves and resources, equivalent to run-of-mine basis, i.e. the grade and tonnage of material produced at the pit rim or shaft collar stated on a dry basis. The reserves that are or can be extracted from a coal seam during mining. Recoverable Reserves are obtained by deducting anticipated geological and mining losses, areas of inferior coal quality from the Proved and Probable Reserves. Untreated wastewater. A river, lake, ocean, stream, or other watercourse into which wastewater or treated effluent is discharged. 1. In mining, the ratio of recovered tonnage, grade, metal content to in situ tonnage, grade, metal content. 2. In metallurgical operations the percentage of contained metal in feed to a plant that is recovered to a valuable product." A measure of the thermal maturity of a coal by the measurement of the amount of light reflected by coal, this measurement is useful for bituminous coals to graphite where reflectance increases from 0.5% for low end bituminous coals to 17% for graphite. Land restored to its former condition

Quarry Quartz Rank

Raw sewage Receiving waters Recoverable Recoverable reserves Raw sewage Receiving waters Recovery Factor

Reflectance

Rehabilitation

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Remaining resources Reserve base

The resources in the ground in a mine or deposit after some mining has taken place. Those parts of the identified resources that meet specified minimum physical and chemical criteria related to current mining and production practices, including those for quality, depth, thickness, rank, and distance from point of measurement. The reserve base is the sum of the in-situ demonstrated (measured plus indicated) resource from which the reserves are estimated. Virgin and/or accessed parts of a coal reserve base, which could be economically extracted or produced at the time of determination, considering environmental, legal and technological constraints. Reserves include only recoverable coal. a) Proved Reserve is those measured mineral resources of which detailed technical and economic studies have demonstrated that extraction can be justified at the time of determination and under specific economic conditions. b) Probable reserve are those measured and/or indicated mineral resources which are not yet proven but of which detailed technical and economic studies have demonstrated that extraction can be justified at the time of determination and under specific economic conditions. c) Measured mineral resource is that portion of a mineral resource for which tonnage or volume is calculated from dimensions revealed in outcrops, pits, trenches, drill holes, or mine workings, supported where appropriate by other exploration techniques. The sites used for inspection, sampling, and measurement must be so spaced that the geological character, continuity, grades and nature of the material are so well defined that the physical character, size, shape, quality and mineral content will be established with a high degree of certainty. d) Indicated mineral resource is that portion of a mineral resource for which quantity and quality can only be estimated with a lower degree of certainty than for a measured mineral resource. The sites used for inspection, sampling, and measurement are too widely or inappropriately spaced to enable the material or its continuity to be defined or its grade throughout to be established. e) Ore reserves are defined as those tonnages that meet the definition of ore and are available for mining from existing or approved planned financed facilities. Investigation into the feasibility of economic exploitation must have been done. e) Fully Developed ore reserves are those tonnages within defined stopes or blocks where at least 95 percent of the sampling is complete; or those tonnages within the open pit design which are exposed and available for extraction. f) Partly Developed ore reserves are those tonnages within defined stopes or blocks where extraction haulages have been mined or sufficient evaluation is available to allow stope preparation to proceed; or those tonnages within the open pit design where only the top of the orebody is exposed. g) Undeveloped ore reserves are the tonnages not included in the Fully or Partly Developed category which are extractable through either existing facilities or approved planned facilities (including finance voted by the Board of Directors); or those tonnages not included in the Fully and Partly Developed categories which fall within the approved open pit design. h) Mineral resources are defined as those mineralised materials which have been examined in sufficient detail to establish their mode of occurrence, size and essential qualities and include reclamation material already mined or treated, for which there is a reasonable expectation of future exploitation. Before such mineral resources can be transferred to the ore reserve category, investigation into the feasibility of economic exploitation must be made and additional investments incurred. Amount of a pollutant remaining in the environment after a natural or technological process has taken place, e.g., the sludge remaining after initial wastewater treatment, or particulates remaining in air after the air passes through a scrubbing or other pollutant removal process. Refer to Joint Ore Reserve Committee (JORC) Code The ownership of the surface land under which minerals occur.

Reserves

Reserves and Resources (JORC classification a)

Reserves and Resources (JORC classification b)

Reserves and Resources (JORC classification c)

Reserves and Resources (JORC classification d) Residual

Resource Grade Rights - Surface Rights

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Ripping and 'dozing Risk assessment

Rolls Crusher

Rights - Surface Rights Ripping and 'dozing Risk assessment

A method of excavation carried out by bull dozers where the ground to be excavated is first loosened by dragging through it one or more metal tines or picks and the loosened material then pushed to the side The qualitative and quantitative evaluation performed in an effort to define the risk posed to human health or the environment by the presence or potential presence and use of specific pollutants. A crusher with two revolving metal cylinders with parallel horizontal axes separated by a small gap; in an assay laboratory, a properly gapped crusher should reduce jaw-crushed feed to 2 mm grains. The ownership of the surface land under which minerals occur. A method of excavation carried out by bull dozers where the ground to be excavated is first loosened by dragging through it one or more metal tines or picks and the loosened material then pushed to the side The qualitative and quantitative evaluation performed in an effort to define the risk posed to human health or the environment by the presence or potential presence and use of specific pollutants. An excavation to access a working area which subsequently may supply services or a conveyor. A furnace which, by applying super-heated air to an ore or concentrate, causes oxidation to take place, allowing the ore or concentrate to be successfully treated. Types include fluid bed, multiple hearth, and rotary kiln. Run of mine A share of the product or profit reserved by the owner for permitting another to exploit the property. That part of precipitation, snowmelt, or irrigation water that runs off the land into streams or other surface water; can carry pollutants from the air and land into the receiving waters. The Grade and tonnage of material produced at the pit rim or shaft collar, stated on a dry basis. A representative fraction of a coal seam collected by approved methods, guarded against contamination, and analysed to determine the nature, chemical, mineralogical or petrographic composition, percentage content of specified constituents, and heat value. Taking small pieces of rock at intervals along exposed mineralisation for assay (to determine the mineral content). A device for separating by size A centrifuge for drying fine coal in the range 2 mm to 0.1 mm A layer or bed of coal. Correlated seams of coal are normally assigned a name, letter or number. A single seam can contain one or more non-coal partings resulting in a subdivision into leaves. A manifestation of a coal seam at the Earth's surface When a coal seam splits into two or more leaves or subsidiary seams. Formed by the deposition of solid fragmental material that originates from weathering of rocks and is transported from a source to a site of deposition. Letting solids settle out of wastewater by gravity during wastewater treatment. Holding areas for wastewater in which floating wastes are skimmed off and settled solids are removed for disposal. Soil, sand, and minerals washed from land into water, usually after rain. Sediments pile up in reservoirs, rivers, and harbours, destroying fish-nesting areas and holes of water animals and clouding the water so that needed sunlight may not reach aquatic plants. Careless farming, mining, and building activities will expose sediment materials, allowing them to be washed off the land after rainfalls. An underground storage tank for wastes from homes having no sewer line to a treatment plant. The wastes go directly from the home to the tank, where the organic waste is decomposed by bacteria and the sludge settles to the bottom. The effluent flows out of the tank into the ground through drains; the sludge is pumped out periodically. Material heavy enough to sink to the bottom of a wastewater treatment tank.

Roadways Roaster

ROM Royalty Runoff Run-of-Mine (ROM) Sample

Sampling Screen Screenbowl centrifuge Seam

Seam outcrop Seam splitting Sedimentary Sedimentation Sedimentation tanks Sediments

Septic tank

Settleable solids

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Settling tank Sewage Sewer

Shot-fire Shovel and truck mining Sized coal Sizer Slurry Soft coking coal Solid waste management Solid wastes

A holding area for wastewater in which heavier particles sink to the bottom for removal and disposal. The waste and wastewater produced by residential and commercial establishments and discharged into sewers. A channel or conduit that carries wastewater and storm water runoff from the source to a treatment plant or receiving stream. Sanitary sewers carry household, industrial, and commercial wastes. Storm sewers carry runoff from rain or snow. Combined sewers are used for both purposes. Explosives blasting Excavating overburden, interburden and coal using stand-alone excavators loading into dump trucks, dumpers and highway trucks Coal that has been screened to a certain size A crusher which reduces coal to given size limits usually prior to discharging onto a conveyor system. A suspension of coal or waste in water A coking coal that when coked produces a soft and normally reactive coke. Supervised handling of waste materials from their source through recovery processes to disposal. Non-liquid, non-soluble materials, ranging from municipal garbage to industrial wastes, that contain complex, and sometimes hazardous, substances. Solid wastes include sewage sludge, agricultural refuse, demolition wastes, and mining residues. Technically, solid wastes also refer to liquids and gases in containers. The ratio of the mass of a unit volume of ore or waste material to the mass of an equal volume of water at 4 degrees C. An in-seam parting which attains a thickness such that the resultant leaves of coal are considered as separate seams from a mining point of view. Excavated material of no commercial value also referred to as waste The propensity of some types of coal to oxidise rapidly on contact with air. The oxidation reactions produce heat that increases the rate of oxidation to the point that the coal ignites. Low rank coals are the most prone to spontaneous combustion. The purchase price of a commodity at the current price, normally this is at a discount to the long term contract price but currently coke, coking coal and thermal coal are being sold at a premium to the long term contract prices. Positioning a dumper or truck such that it may be loaded Large electrically powered machine mounted on caterpillar tracks, which spreads the waste, fed to it by conveyor belt in a prescribed manner Coal which will be used for steam generation principally in thermal power plants. An accumulation of ore or mineral. Layers of sedimentary rock. Bearing of direction of a horizontal line on the surface of a planar feature; 90% to the true dip. Length of a feature in the strike direction. Non economic material which must be removed to expose ore in an open-pit mine or the process of removing such material to expose ore. The amount of overburden that must be removed to gain access to a unit amount of coal. This is normally reported as bank cubic metres (bcm) overburden per recoverable tonne of coal (bcm/t). A rank class of coal with a heat value content of more than 4,600 kcal/kg and less than 6,400 kcal/kg on a moist mineral-matter-free basis. That form of sulphur that is contained within sulphate minerals such as gypsum (CaSO4). Usually formed as a result of weathering or oxidation of the coal. A mineral characterised by the bonds of sulphur with a metal or semi-metal, such as pyrite, FeS2 (iron sulphide). Also a zone in which sulphide minerals occur. A pit or tank that catches liquid runoff for drainage or disposal.

Specific Gravity (SG) Split Spoil Spontaneous combustion Spot

Spotting Spreader Steam coal Stockpile Strata Strike Strike Length Stripping Stripping ratio, (SR) Sub-bituminous coal Sulphate sulphur Sulphide Sump

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Surface water

Suspended solids Sustaining Capital Swell factor Swelling Index (SI) Swelling Number Swillies Syncline Synclinorium Synform Supergene Surface water

All water naturally open to the atmosphere (rivers, lakes, reservoirs, streams, impoundments, seas, estuaries, etc.); also refers to springs, wells, or other collectors that are directly influenced by surface water. Small particles of solid pollutants that float on the surface of or are suspended in sewage or other liquids. They resist removal by conventional means. See also Total suspended solids Periodic capital expenditures required to replace or overhaul equipment. Also known as replacement capital. The ratio of a materials in-bank density (in its unexcavated state) to its loose density (after it has been excavated) The measure of increase in the volume of coal when heated, with the exclusion of air. A measure of the propensity for some bituminous coals belonging to the coking coal calls to swell on rapid heating Sedimentological undulations in the floor of a coal seam - usually underground A fold in bedded or stratified rocks which opens upward, like the trough of a wave. A structural basin containing many parallel subsidiary folds A structure which gives the appearance of a syncline. Mineralisation formed by leaching, transportation and deposition via groundwater. All water naturally open to the atmosphere (rivers, lakes, reservoirs, streams, impoundments, seas, estuaries, etc.); also refers to springs, wells, or other collectors that are directly influenced by surface water. Small particles of solid pollutants that float on the surface of or are suspended in sewage or other liquids. They resist removal by conventional means. See also Total suspended solids Periodic capital expenditures required to replace or overhaul equipment. Also known as replacement capital. The ratio of a materials in-bank density (in its unexcavated state) to its loose density (after it has been excavated) The measure of increase in the volume of coal when heated, with the exclusion of air. A measure of the propensity for some bituminous coals belonging to the coking coal calls to swell on rapid heating Sedimentological undulations in the floor of a coal seam - usually underground A fold in bedded or stratified rocks which opens upward, like the trough of a wave. A structural basin containing many parallel subsidiary folds A structure which gives the appearance of a syncline. Metric tonne = 1000 kg Metric tonne = 1000 kg The fluid slurry after treatment and extraction of the economically extracted mineral. One to which the slurry is transported, the solids settling while the liquid may be withdrawn. Low ash coke that is < 100 mm top-size and greater than 3 mm bottom size. A coal used to provide heat from combustion Factor used to reduce a component of a cash flow or cash flow for uncertainty relating to a specified technical risk. The physical features of a district or region delineated on a map. The largest size particle that coal has been crushed to. The sum of the inherent moisture and the free (or surface) moisture. The total amount of sulphur contained within the coal comprising sulphur from pyrite, sulphate minerals and organic sulphur. A measure of the suspended solids in wastewater, effluent, or water bodies. See also Suspended solids Metric tonnes per day Tonnes per month. Lines excavated to a pre determined depth to establish the geological structure of a deposit

Suspended solids Sustaining Capital Swell factor Swelling Index (SI) Swelling Number Swillies Syncline Synclinorium Synform t t Tailing(s) Tailings Dam Technological coke Thermal Coal Technical Risk Factors Topographical Topsize Total Moisture Total sulphur Total suspended solids (TSS) tpd tpm Trenches

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Turbidity Ultimate analysis USA V Vend Vibrating Screen - Double Deck Vibratory feeder Volatile Matter

1. Haziness in air caused by the presence of particles and pollutants 2. A similar cloudy condition in water due to suspended silt or organic matter. Analysis of the elemental components of coal carbon, hydrogen, nitrogen, oxygen and sulphur. Normally reported on a dry or dry ash-free basis. United States of America) VOLTS The percentage of saleable coal recovered from the washing process A cloth, wire or bar-deck screen vibrated in order to sort material by size. Double deck indicates one screen mounted below the first. A mechanical arrangement at the bottom of a hopper or chute which facilitates the flow of material on to an under-mounted conveyor That portion of the coal comprising both gases and liquids that is released following heating from 105C to 800C. The amount of volatile matter in a coal is a function of the rank of the coal (thermal maturity) and of the coal type. High rank coals have a low volatile matter content (<20%) medium rank coals have a higher volatile matter content (20 30 %) and low rank coals have a high percentage of volatile matter. The type of coal also effects volatile matter, coal with a high inertinite content will produce less volatile matter than a coal with high vitrinite content that will produce less volatile matter than a coal with high liptinite content. WATTS Result of a laboratory test that separates a sample of coal into different density fraction. Is used to predict plant performance A plant designed to size and clean material to produce predetermined sizes of product. Rock or material of no commercial value residing within the ore horizon/reef. Rock or material of no commercial value residing within the ore horizon/reef. 1. Unwanted materials left over from a manufacturing process 2. Refuse from places of human or animal habitation. Spent or used water from individual homes, communities, farms, or industries that contains dissolved or suspended matter. A facility containing a series of tanks, screens, filters, and other processes by which pollutants are removed from water. The presence in water of enough harmful or objectionable material to damage water quality Established rights affecting land to which the owner does not hold title. Accounts receivable less accounts payable.

W Washability Washing Plant Waste - Internal Waste Parting Wastes Wastewater Wastewater treatment plant Water pollution Wayleave Working Capital

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INDEX TO FINANCIAL STATEMENTS OF THE GROUP Audited Consolidated Financial Statements for the Financial Years Ended 31 December 2011, 2010 and 2009 with Independent Auditors Report thereon: Independent auditors report . . . . . . . . . . . . . . . . Consolidated statements of comprehensive income Consolidated statements of financial position . . . . Consolidated cash flow statements . . . . . . . . . . . . Consolidated statements of changes in equity . . . . Notes to the consolidated financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4 F-6 F-7 F-8 F-9 F-10

F-1

OAO Raspadskaya Consolidated financial statements for the years ended 31 December 2011, 2010 and 2009

F-2

OAO Raspadskaya Consolidated financial statements for the years ended 31 December 2011, 2010 and 2009 Contents Independent auditors report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Consolidated Consolidated Consolidated Consolidated financial statements: statements of comprehensive income statements of financial position . . . . cash flow statements . . . . . . . . . . . . statements of changes in equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4 F-6 F-7 F-8 F-9 F-10 F-10 F-21 F-23 F-24 F-24 F-25 F-27 F-30 F-30 F-30 F-31 F-31 F-33 F-33 F-34 F-35 F-37 F-37 F-37 F-37 F-39 F-43

Notes to the consolidated financial statements: 1. Corporate information . . . . . . . . . . . . . . . . . . . . . . . . . 2. Significant accounting policies . . . . . . . . . . . . . . . . . . . 3. Significant accounting judgments and estimates . . . . . . . 4. Business combination . . . . . . . . . . . . . . . . . . . . . . . . . . 5. Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7. Income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8. Property, plant and equipment . . . . . . . . . . . . . . . . . . . 9. Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . 10. Short-term bank deposits and cash and cash equivalents 11. Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12. Trade and other receivables and prepayments . . . . . . . . 13. Related party disclosures . . . . . . . . . . . . . . . . . . . . . . . 14. Other taxes recoverable . . . . . . . . . . . . . . . . . . . . . . . . 15. Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16. Loans and borrowings . . . . . . . . . . . . . . . . . . . . . . . . . 17. Employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18. Site restoration provision . . . . . . . . . . . . . . . . . . . . . . . 19. Trade and other payables . . . . . . . . . . . . . . . . . . . . . . . 20. Other taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 21. Commitments and contingencies . . . . . . . . . . . . . . . . . . 22. Financial risks management objectives and policies . . . . 23. Events after the reporting period . . . . . . . . . . . . . . . . .

F-3

2APR201218422401

Independent auditors report

To Shareholders and Board of Directors of OAO Raspadskaya We have audited the accompanying consolidated financial statements of OAO Raspadskaya and its subsidiaries (the Group), which comprise the consolidated statements of financial position as at 31 December 2011, 2010 and 2009 and the consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated cash flow statements for each of the three years then ended, and a summary of significant accounting policies and other explanatory notes. Managements responsibility for the consolidated financial statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entitys preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

A member firm of Ernst & Young Global Limited

F-4

5APR201121321792

Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as at 31 December 2011, 2010 and 2009 and its financial performance and its cash flows for each of the three years then ended in accordance with International Financial Reporting Standards. Emphasis of matter We draw attention to Note 1 to the consolidated financial statements, which discloses a significant concentration of the Groups business with related parties.

27FEB200921165748
29 March 2012

F-5

OAO Raspadskaya Consolidated statements of comprehensive income

Year ended 31 December 2011 2010 2009 US$000 US$000 US$000

Notes

Revenue Sales of goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selling and distribution costs . . . . . . . . . . . . . . . . General and administrative expenses . . . . . . . . . . Social expenses . . . . . . . . . . . . . . . . . . . . . . . . . . Loss on disposal of property, plant and equipment Foreign exchange (losses)/gains . . . . . . . . . . . . . . Other operating income . . . . . . . . . . . . . . . . . . . Other operating expenses . . . . . . . . . . . . . . . . . . Dividend income . . . . . . . . . . . . . . . . . . . . Interest income . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . Gain from a bargain purchase of subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

707,970 18,131 726,101 (358,805) 367,296 (4,543) (60,879) (9,117) (7,057) (10,754) 9,512 (95,926) 188,532 23 16,865 (28,132) 177,288 (41,571) 135,717 (78,094) (697) 126 (571) (78,665) 57,052 135,439 278 135,717

686,343 19,263 705,606 (325,008) 380,598 (3,504) (52,026) (5,867) (44,100) 1,826 5,075 (92,653) 189,349 3 16,519 (26,500) 104,735 284,106 (39,788) 244,318 (15,072) 507 (104) 403 (14,669) 229,649 244,754 (436) 244,318 230,127 (478) 229,649

483,831 13,216 497,047 (263,176) 233,871 (2,583) (40,600) (5,396) (1,179) (15,529) 1,553 (7,061) 163,076 12 12,322 (25,307) 150,103 (32,966) 117,137 (28,083) 1,411 (274) 1,137 (26,946) 90,191 116,596 541 117,137 89,775 416 90,191

Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4 7

Profit before income tax . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Profit for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income: Effect of translation to presentation currency . . . . . . . . . . . Net (loss)/gain on available-for-sale financial assets . . . . . . . Income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive loss for the year, net of tax . . . . . . . . Total comprehensive income for the year . . . . . . . . . . . . . . Profit/(loss) for the year attributable to: Equity holders of the parent . . . . . . . . . . . . . . . . . . . . . . . Non-controlling interests . . . . . . . . . . . . . . . . . . . . . . . . . Total comprehensive income/(loss) attributable to: Equity holders of the parent . . . . . . . . . . . . . . . . . . . . . . . Non-controlling interests . . . . . . . . . . . . . . . . . . . . . . . . . Earnings per share: basic and diluted, for profit for the year attributable to the equity holders of the parent, US dollars (5.10 rubles, 9.34 rubles and 4.74 rubles for the years ended 31 December 2011, 2010 and 2009, respectively) . . . . . . . . . . . . . . . . .

57,001 51 57,052

15

0.17

0.31

0.15

The accompanying notes form an integral part of these consolidated financial statements.

F-6

OAO Raspadskaya Consolidated statements of financial position

31 December 2010 US$000

Notes

2011 US$000

2009 US$000

Assets Non-current assets Property, plant and equipment . . . . . . . . . . . . . . . . . . . . Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . Current assets Inventories . . . . . . . . . . . . . . . . Trade and other receivables . . . . Prepayments . . . . . . . . . . . . . . . Receivables from related parties . Income tax receivable . . . . . . . . Other taxes recoverable . . . . . . . Short-term bank deposits . . . . . . Cash and cash equivalents . . . . .

8 7 9

1,461,779 49,206 5,258 1,516,243

1,529,894 22,553 5,718 1,558,165 77,199 47,329 12,749 32,621 7,806 15,866 158,384 164,628 516,582 2,074,747

1,409,708 2,108 35,958 1,447,774 44,274 73,970 17,800 73,385 3,406 11,136 149,953 28,277 402,201 1,849,975

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

11 12 12 13 14 10 10

84,046 60,033 4,614 39,785 2,763 10,361 80,179 180,100 461,881 1,978,124

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity and liabilities Equity attributable to equity holders of the parent Issued capital . . . . . . . . . . . . . . . . . . . . . . . . . . . Additional paid-in capital . . . . . . . . . . . . . . . . . . Reserve capital . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated profits . . . . . . . . . . . . . . . . . . . . . . Unrealized gain on available-for-sale investments . Translation difference . . . . . . . . . . . . . . . . . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

15 15

303 784,139 7 543,859 1,487 (272,382) 1,057,413 4,486 1,061,899

303 783,862 7 907,359 2,058 (194,515) 1,499,074 5,257 1,504,331 302,387 151,862 22,200 11,703 488,152 41,088 19 8,216 2,504 4,855 25,404 178 82,264 2,074,747

303 783,862 7 662,605 1,655 (179,485) 1,268,947 5,735 1,274,682 303,320 140,496 19,542 1,567 464,925 43,410 3,095 28,407 1,274 7,455 26,449 278 110,368 1,849,975

Non-controlling interests . . . . . . . . . . . . . . . . . . . . . . . . Non-current liabilities Long-term loans . . . . . . . . . . . . . . Deferred income tax liabilities . . . . Post-employment benefits liabilities Site restoration provision . . . . . . . . Current liabilities Trade and other payables . . . Advances from customers . . Short-term loans and current Payables to related parties . . Income tax payable . . . . . . . Other taxes payable . . . . . . . Share buyback liability . . . . . Dividends payable . . . . . . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

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. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

16 7 17 18

1,243 136,242 23,045 9,937 170,467

.................... .................... portion of long-term loans .................... .................... .................... .................... ....................

. . . . . . . .

19 16 13 20 15

45,863 49 304,027 2,262 4,324 25,337 363,771 125 745,758 1,978,124

Total equity and liabilities . . . . . . . . . . . . . . . . . . . . . . .

The accompanying notes form an integral part of these consolidated financial statements.

F-7

OAO Raspadskaya Consolidated cash flow statements

Year ended 31 December 2011 2010 2009 US$000 US$000 US$000

Notes

Operating activities Profit for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments to reconcile net profit to net cash flows from operating activities: Depreciation, depletion and amortization . . . . . . . . . . . . Deferred income tax benefit . . . . . . . . . . . . . . . . . . . . . . Loss on disposal of property, plant and equipment . . . . . Foreign exchange losses/(gains) . . . . . . . . . . . . . . . . . . . Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reversal of the value of assets written off in prior periods Gain from a bargain purchase of subsidiary . . . . . . . . . . . Net employee benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . Change in bad debt allowance . . . . . . . . . . . . . . . . . . . . Changes in working capital: Inventories . . . . . . . . . . . . . . . . . . . . . . . . Trade and other receivables . . . . . . . . . . . . Prepayments . . . . . . . . . . . . . . . . . . . . . . . Receivables from/payables to related parties Trade and other payables . . . . . . . . . . . . . . Advances from customers . . . . . . . . . . . . . . Taxes payable, net of taxes receivable . . . . . Investing activities Purchases of property, plant and equipment Bank deposits, including interest . . . . . . . . Purchase of subsidiary, net of cash acquired Other investing activities, net . . . . . . . . . . .

135,717

244,318

117,137

6 7

124,952 (38,622) 7,057 10,754 (23) (16,865) 28,132 (3,969) (1,260) (95) 245,778

110,563 (31,636) 44,100 (1,826) (3) (16,519) 26,500 (104,735) (179) (815) 269,768 (33,380) 29,292 4,886 42,872 8,055 (3,062) (10,526) 307,905 (137,570) 37,499 (34,021) 5,346 (128,746) 4,929 (47,723) (98) (42,892) 84 136,351 28,277 164,628

74,692 (995) 1,179 15,529 (12) (12,322) 25,307 551 623 221,689 9,706 (13,812) (9,462) (17,127) (4,362) 2,949 32,040 221,621 (153,163) (57,066) 626 (209,603) 35,021 (78,005) (6,554) (49,538) (5,758) (43,278) 71,555 28,277

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

(12,018) (16,696) 7,910 (9,875) 6,294 33 11,286 232,712 (144,437) 99,655 631 (44,151) 812 (29,426) (545) (135,217) (164,376) (8,713) 15,472 164,628 180,100

Net cash flows from operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net cash flows used in investing activities . . . . . . . . . . . . . Financing activities Proceeds from loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . Repayment of loans, including interest, net of government grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchase of non-controlling interest in subsidiary . . . . . . . Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net cash flows used in financing activities . . . . . . . . . . . . . Effect of foreign exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net increase/(decrease) in cash and cash equivalents . . . . . Cash and cash equivalents at the beginning of the year . . . . Cash and cash equivalents at the end of the year . . . . . . . . Supplementary cash flow information: Cash flows during the year: Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

23,012 16,495 91,341

22,994 14,424 81,902

23,636 12,269 29,707

The accompanying notes form an integral part of these consolidated financial statements.

F-8

OAO Raspadskaya Consolidated statements of changes in equity for the years ended 31 December 2011, 2010 and 2009
Attributable to the equity holders of the parent Unrealized gain on Additional availableParent Nonpaid-in Reserve Accumulated for-sale Translation shareholders controlling capital capital profits investments difference equity interests US$000 US$000 US$000 US$000 US$000 US$000 US$000

Issued capital US$000

Total US$000

At 31 December 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income/(loss) . . . . . . . . . . . . . . . . . . . . . . . Total comprehensive income/(loss) . . . . . . . . . . . . . . . . . . . . . . . At 31 December 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income/(loss) . . . . . . . . . . . . . . . . . . . . . . . Total comprehensive income/(loss) . . . . . . . . . . . . . . . . . . . . . . . At 31 December 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income/(loss) . . . . . . . . . . . . . . . . . . . . . . . Total comprehensive income/(loss) . . Buyback of shares (Note 15) . . . . . . . Acquisition of non-controlling interest Dividends paid (Note 15) . . . . . . . . . .. .. in .. ........ ........ subsidiary ........ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-9

303 303 303 303

783,862 783,862 783,862 277 784,139

7 7 7 7

546,009 116,596 116,596 662,605 244,754 244,754 907,359 135,439 135,439 (363,771) (135,168) 543,859

518 1,137 1,137 1,655 403 403 2,058 (571) (571) 1,487

(151,527) 1,179,172 (27,958) (27,958) (15,030) (15,030) (77,867) (77,867) 116,596 (26,821) 89,775 244,754 (14,627) 230,127 135,439 (78,438) 57,001 (363,771) 277 (135,168)

5,319 541 (125) 416 5,735 (436) (42) (478) 5,257 278 (227) 51 (822) 4,486

1,184,491 117,137 (26,946) 90,191 1,274,682 244,318 (14,669) 229,649 1,504,331 135,717 (78,665) 57,052 (363,771) (545) (135,168) 1,061,899

(179,485) 1,268,947

(194,515) 1,499,074

At 31 December 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(272,382) 1,057,413

The accompanying notes form an integral part of these consolidated financial statements.

OAO Raspadskaya Notes to the consolidated financial statements for the years ended 31 December 2011, 2010 and 2009 1. Corporate information

The consolidated financial statements of OAO Raspadskaya (the Company) for the years ended 31 December 2011, 2010 and 2009 were authorized for issue in accordance with a resolution of the Board of Directors on 29 March 2012. The Company is an open joint-stock company (OAO) registered under the Russian law. The Company commenced operations in 1973. The registered office of the Company is 106, Mira Street, Mezhdurechensk, Kemerovo region, Russia. The Companys controlling shareholder is Corber Enterprises Limited (Cyprus) (Corber), a 50/50 joint venture set up by Adroliv Investments Limited (Cyprus) (Adroliv) owned by the Companys management, and Mastercroft Mining Limited, a subsidiary of EVRAZ Plc (UK) (Evraz). Corber owns 80% of the Companys shares. The Companys shares are traded on the Russian stock exchange RTS-MICEX. The Company and its subsidiaries (the Group) derive 98% of their revenues from sales of coking coal. Other revenue sources include sales of other goods, transport-handling and other services. In the years ended 31 December 2011, 2010 and 2009, 29%, 28% and 21%, respectively, of the Groups revenues were generated in transactions with related parties. For detailed information on such activities refer to Note 13. The major subsidiaries included in the consolidated financial statements of the Company at 31 December were as follows:
Ownership interest 2011 2010 2009 Business activity

OAO MUK-96 . . . . . . . . . . . . . . . . ZAO Razrez Raspadskiy . . . . . . . . . ZAO Raspadskaya-Koksovaya . . . . . ZAO Koksovaya . . . . . . . . . . . . . . . ZAO Raspadskaya Preparation Plant OOO Raspadskiy Ugol . . . . . . . . . . ZAO Raspadskaya Coal Company . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

100% 100% 100% 100% 100% 100%

100% 100% 100% 100% 100% 100% 100%

100% 100% 100% 100% 100% 100%

Coal mining Coal mining Coal mining Coal mining Coal processing Coal trading Managing

The Group operates as a vertically integrated business and reports its activities as a single business segment. All of the Groups subsidiaries and assets are located and incorporated in Russia. The Group consolidates a Eurobond vehicleRaspadskaya Securities Limited, Special Purpose Entity registered in the Republic of Ireland. On 1 February 2011, ZAO Koksovaya was merged with ZAO Raspadskaya-Koksovaya. 2. Significant accounting policies

Basis of preparation The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS). The consolidated financial statements have been prepared under historical cost convention, except as disclosed in the accounting policies below. Exceptions include, but are not limited to, property, plant and equipment at the date of transition to IFRS accounted for at deemed cost, available for sale investments measured at fair value, assets classified as held for sale measured at the lower of their carrying amount or fair value less costs to sell and post-employment benefits measured at present value. Certain reclassifications have been made to the financial statements for the years ended 31 December 2010 and 2009 to conform to the current period presentation. The consolidated financial statements are presented in US dollars (US$) and all values are rounded to the nearest thousand (US$000) except when otherwise stated.

F-10

OAO Raspadskaya Notes to the consolidated financial statements (Continued)

2.

Significant accounting policies (Continued)

Going Concern These consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Group continues its reconstruction of Raspadskaya mine and expects to improve its financial position and results in 2012. At 31 December 2011 current liabilities exceeded current assets by US$283,877,000, which relates to accrual of a liability in respect of shares buyback programme (Note 15). In addition, current liabilities include loan participation notes in the amount of US$300,000,000 maturing in May 2012. Notes 15 and 23 disclose sources of liquidity covering these liabilities. Accordingly, management believes the Group has adequate resources to continue in operational existence for the foreseeable future. Changes in accounting policies In the preparation of the consolidated financial statements, the Group followed the same accounting policies and methods of computation as compared with those applied in the consolidated financial statements for year ended 31 December 2010, except for the adoption of the revision of the existing standards: New/revised standards and interpretations adopted in 2011 Amendment to IAS 24 Related Party Disclosures The amendment clarifies the definitions of a related party. The amendment introduces an exemption from the general related party disclosure requirements for transactions with a government and entities that are controlled, jointly controlled or significantly influenced by the same government as the reporting entity. The adoption of the amendment did not have any impact on the financial position or performance of the Group. Amendment to IAS 32 Financial Instruments: Presentation The amendment alters the definition of a financial liability in IAS 32 to enable entities to classify rights issues and certain options or warrants as equity instruments. The amendment is applicable if the rights are given pro rata to all of the existing owners of the same class of an entitys non-derivative equity instruments, to acquire a fixed number of the entitys own equity instruments for a fixed amount in any currency. The amendment had no effect on the financial position or performance of the Group. IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments The interpretation clarifies that equity instruments issued to a creditor to extinguish a financial liability qualify as consideration paid. The equity instruments issued are measured at their fair value. In case that this cannot be reliably measured, the instruments are measured at the fair value of the liability extinguished. Gains and losses are recognized immediately in profit or loss. The adoption of this interpretation had no effect on the financial position or performance of the Group. Amendments to IFRIC 14/IAS 19 Prepayments of a Minimum Funding Requirement The amendment removes an unintended consequence when an entity is subject to minimum funding requirements and makes an early payment of contributions to cover such requirements. The amendment permits a prepayment of future service cost by the entity to be recognized as pension asset. The amendment to the interpretation had no effect on the financial position or performance of the Group. Amendments to standards following May 2010 Improvements to IFRS project The third omnibus of amendments to IFRS was issued primarily with a view to removing inconsistencies and clarifying wording. The adoption of these amendments did not have significant impact on the financial statements of the Group.

F-11

OAO Raspadskaya Notes to the consolidated financial statements (Continued)

2.

Significant accounting policies (Continued)

Standards issued but not yet effective Standards issued but not yet effective up to the date of issuance of the Groups financial statements are listed below. This listing of standards and interpretations issued are those that the Group reasonably expects to have an impact on disclosures, financial position or performance when applied at a future date. The Group intends to adopt these standards when they become effective. IAS 1 Financial Statement PresentationPresentation of Items of Other Comprehensive Income The amendments to IAS 1 change the grouping of items presented in other comprehensive income. Items that could be reclassified (or recycled) to profit or loss at a future point in time (for example, upon derecognition or settlement) would be presented separately from items that will never be reclassified. The amendment affects presentation only and has no impact on the Groups financial position or performance. The amendment becomes effective for annual periods beginning on or after 1 July 2012. IAS 19 Employee Benefits (Amendment) The IASB has issued numerous amendments to IAS 19. These range from fundamental changes such as removing the corridor mechanism and the concept of expected returns on plan assets to simple clarifications and re-wording. The Group had made a voluntary change in accounting policy to recognize actuarial gains and losses in other comprehensive income in the current period. The amendment becomes effective for annual periods beginning on or after 1 January 2013. IAS 27 Separate Financial Statements (as revised in 2011) As a consequence of the new IFRS 10 and IFRS 12, what remains of IAS 27 is limited to accounting for subsidiaries, jointly controlled entities, and associates in separate financial statements. The Group does not present separate financial statements. The amendment becomes effective for annual periods beginning on or after 1 January 2013. IAS 32 Financial Instruments: PresentationOffsetting Financial Assets and Financial liabilities The amendments to IAS 32 clarify the meaning of currently has a legally enforceable right to set-off and also clarify the application of the IAS 32 offsetting criteria to settlement systems which apply gross settlement mechanisms that are not simultaneous. The amendments are to be retrospectively applied for annual periods beginning on or after 1 January 2014. IFRS 7 Financial Instruments: Disclosures Offsetting Financial Assets and Financial liabilities These disclosures would provide users with information that is useful in (a) evaluating the effect or potential effect of netting arrangements on an entitys financial position and (b) analysing and comparing financial statements prepared in accordance with IFRSs and US GAAP. IFRS 7 Financial Instruments: DisclosuresEnhanced Derecognition Disclosure Requirements The amendment requires additional disclosure about financial assets that have been transferred but not derecognized to enable the user of the Groups financial statements to understand the relationship with those assets that have not been derecognized and their associated liabilities. In addition, the amendment requires disclosures about continuing involvement in derecognized assets to enable the user to evaluate the nature of, and risks associated with, the entitys continuing involvement in those derecognized assets. The amendment becomes effective for annual periods beginning on or after 1 July 2011. The amendment affects disclosure only and has no impact on the Groups financial position or performance. IFRS 9 Financial Instruments: Classification and Measurement IFRS 9 as issued reflects the first phase of the IASBs work on the replacement of IAS 39 and applies to classification and measurement of financial assets and financial liabilities as defined in IAS 39. The standard is effective for annual periods beginning on or after 1 January 2015. In subsequent phases, the

F-12

OAO Raspadskaya Notes to the consolidated financial statements (Continued)

2.

Significant accounting policies (Continued)

IASB will address hedge accounting and impairment of financial assets. The completion of this project is expected over the first half of 2012. IFRS 10 Consolidated Financial Statements IFRS 10 replaces the portion of IAS 27 Consolidated and Separate Financial Statements that addresses the accounting for consolidated financial statements. It also includes the issues raised in SIC-12 ConsolidationSpecial Purpose Entities. IFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by IFRS 10 will require management to exercise significant judgment to determine which entities are controlled, and therefore, are required to be consolidated by a parent, compared with the requirements that were in IAS 27. This standard becomes effective for annual periods beginning on or after 1 January 2013. IFRS 11 Joint Arrangements IFRS 11 replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly-controlled Entities Non-monetary Contributions by Venturers. IFRS 11 removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, JCEs that meet the definition of a joint venture must be accounted for using the equity method. This standard becomes effective for annual periods beginning on or after 1 January 2013. IFRS 12 Disclosure of Involvement with Other Entities IFRS 12 includes all of the disclosures that were previously in IAS 27 related to consolidated financial statements, as well as all of the disclosures that were previously included in IAS 31 and IAS 28. These disclosures relate to an entitys interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required. This standard becomes effective for annual periods beginning on or after 1 January 2013. IFRS 13 Fair Value Measurement IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. This standard becomes effective for annual periods beginning on or after 1 January 2013. The Group expects that the adoption of the pronouncements listed above will not have a significant impact on the Groups results of operations and financial position in the period of initial application. Amended IAS 19 Employee Benefits introduced recognition of actuarial gains and losses in other comprehensive income in the period they occur. This amendment is required to be applied retrospectively. At 31 December 2011, the Group had US$21,909,000 actuarial losses (Note 17), they will increase the Groups liabilities under defined benefit plans. Foreign currency transactions The presentation currency of the Group is the US dollar because the presentation in US dollars is convenient for the major current and potential users of the consolidated financial statements. The functional currency of the Company and its subsidiaries is the Russian ruble (the ruble). As at the reporting date, the assets and liabilities of the subsidiaries are translated into the presentation currency at the rate of exchange ruling at the end of the reporting period, and their statements of comprehensive income are translated at the weighted average exchange rates that approximate the exchange rates at the dates of the transactions. The exchange differences arising on the translation are taken directly to equity as a separate component. Transactions in foreign currencies in the Group are initially recorded in the functional currency at the rate ruling at the date of transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Monetary assets and

F-13

OAO Raspadskaya Notes to the consolidated financial statements (Continued)

2.

Significant accounting policies (Continued)

liabilities denominated in foreign currencies are translated into rubles at the exchange rate ruling at the end of the reporting period. All resulting differences are taken to the consolidated statement of comprehensive income. Basis of consolidation Subsidiaries Subsidiaries, which are those entities in which the Company has an interest of more than 50% of the voting rights, or otherwise has power to exercise control over their operations, are consolidated. Subsidiaries are consolidated from the date on which control is transferred to the Company and are no longer consolidated from the date when control ceases. All intercompany transactions, balances and unrealized gains on transactions between group companies are eliminated; unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Where necessary, accounting policies for subsidiaries have been changed to ensure consistency with the policies adopted by the Group. Acquisition of subsidiaries Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value, and the amount of any non-controlling interest in the acquiree. For each business combination, the Group elects whether it measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquirees identifiable net assets. Acquisition costs incurred are expensed and included in administrative expenses. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree. If the business combination is achieved in stages, the acquisition date fair value of the acquirers previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss. Any contingent consideration to be transferred by the acquirer is recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognized in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. If the contingent consideration is classified as equity, it is not remeasured. Subsequent settlement is accounted for within equity. In instances where the contingent consideration does not fall within the scope of IAS 39, it is measured in accordance with the appropriate IFRS. Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognized for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognized in profit or loss. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Groups cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this

F-14

OAO Raspadskaya Notes to the consolidated financial statements (Continued)

2.

Significant accounting policies (Continued)

circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained. Increases in ownership interests in subsidiaries The differences between the carrying values of net assets attributable to interests in subsidiaries acquired and the consideration given for such increases is either added to additional paid-in capital, if positive, or charged to accumulated profits, if negative, in these consolidated financial statements. Property, plant and equipment The Groups property, plant and equipment, except for the items acquired prior to 1 January 2003, are stated at purchase or construction cost, excluding the costs of day-to-day servicing, less accumulated depreciation and any impairment in value. Such cost includes the cost of replacing part of plant and equipment when that cost is incurred and recognition criteria are met. The items of property, plant and equipment acquired prior to 1 January 2003 were accounted for at deemed cost being their fair value at 1 January 2003 less subsequent accumulated depreciation and any impairment in value. The Groups property, plant and equipment include mining assets, which consist of mineral reserves, mine development and construction costs and capitalized site restoration costs. Mineral reserves represent tangible assets acquired in business combinations. Mine development and construction costs represent expenditures incurred in developing access to mineral reserves and preparations for commercial production, including sinking shafts and underground drifts, roads, infrastructure, buildings, machinery and equipment. At each reporting date management makes an assessment to determine whether there is any indication of impairment of property, plant and equipment. If any such indication exists, management estimates the recoverable amount, which is the higher of an assets fair value less costs to sell and its value in use. The carrying amount is reduced to the recoverable amount, and the difference is recognized as an impairment loss in the statement of comprehensive income. An impairment loss recognized for an asset in previous years is reversed if there has been a change in the estimates used to determine the assets recoverable amount. Land and assets under construction are not depreciated. Depreciation on other classes of property, plant and equipment, except for mining assets, is calculated on a straight-line basis over the estimated useful lives of the assets. The useful lives of items of property, plant and equipment and methods of their depreciation are reviewed, and adjusted as appropriate, at each fiscal year-end. The following table sets out the useful lives of items of property, plant and equipment.
Useful lives (years) Weighted average useful life (years)

Buildings and constructions . . Machinery and equipment . . . Transport and motor vehicles . Other assets . . . . . . . . . . . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

10 60 2 25 4 32 29

21 5 5 4

The Group determines the depreciation charge separately for each significant part of an item of property, plant and equipment. Depletion of mining assets including capitalized site restoration costs is calculated using the units-of-production method based upon proved and probable mineral reserves. Maintenance costs relating to items of property, plant and equipment are expensed as incurred. Major renewals and improvements are capitalized, and the replaced assets are derecognized.

F-15

OAO Raspadskaya Notes to the consolidated financial statements (Continued)

2.

Significant accounting policies (Continued)

Leases The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset. Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalized from the commencement of the lease term at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to interest expense. The depreciation policy for depreciable leased assets is consistent with that for depreciable assets, which are owned. If there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is fully depreciated over the shorter of the lease term or its useful life. Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognized as an expense in the statement of comprehensive income on a straight-line basis over the lease term. Financial assets The Group classified its financial assets into the following categories: financial assets at fair value through profit or loss; loans and receivables; held-to-maturity and available-for-sale. When financial assets are recognized initially, they are measured at fair value plus, in the case of financial assets not at fair value through profit or loss, directly attributable transaction costs. The Group determines the classification of its financial assets after initial recognition. Financial assets that are acquired principally for the purpose of generating a profit from short-term fluctuations in price are classified as held for trading and included in the category financial assets at fair value through profit or loss. Financial assets which are included in this category are subsequently carried at fair value; gains or losses on such financial assets are recognized in income. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortized cost using the effective interest method. Gains and losses are recognized in income when the loans and receivables are derecognized or impaired, as well as through the amortization process. Non-derivative financial assets with fixed or determinable payments and fixed maturity that the management has the positive intent and ability to hold to maturity are classified as held-to-maturity. Held-to-maturity financial assets are carried at amortized cost using the effective interest method. Financial investments intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, are classified as available-for-sale; these are included in non-current assets unless management has the express intention of holding the investment for less than 12 months from the end of the reporting period or unless they will need to be sold to raise operating capital, in which case they are included in current assets. Management determines the appropriate classification of its financial investments at the time of the purchase and re-evaluates such designation on a regular basis. After initial recognition available-for-sale financial investments are measured at fair value with gains or losses being recognized as a separate component of other comprehensive income until the investment is derecognized or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in other comprehensive income is included in the profit or loss. Reversals of impairment losses in respect of equity instruments are not recognized in the statement of comprehensive income. Impairment losses in respect of debt instruments are reversed through profit or loss if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment loss was recognized in the statement of comprehensive income.

F-16

OAO Raspadskaya Notes to the consolidated financial statements (Continued)

2.

Significant accounting policies (Continued)

For investments that are actively traded in organized financial markets, fair value is determined by reference to stock exchange quoted market bid prices at the close of business on the end of the reporting period. For investments where there is no active market, fair value is determined using valuation techniques. Such techniques include using recent arms length market transactions, reference to the current market value of another instrument, which is substantially the same, discounted cash flow analysis or other valuation models. All purchases and sales of financial assets under contracts to purchase or sell financial assets that require delivery of the asset within the time frame generally established by regulation or convention in the market place are recognized on the settlement date i.e. the date the asset is delivered by/to the counterparty. Trade and other receivables Accounts receivable, which generally are short term, are recognized and carried at the original invoice amount less an allowance for any uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when identified. The Group establishes an allowance for impairment of accounts receivable that represents its estimate of incurred losses. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar receivables in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets. Inventories Inventories are recorded at the lower of cost and net realizable value. Cost of inventory is determined on the weighted average basis and includes expenditure incurred in acquiring or producing inventories and bringing them to their existing location and condition. The cost of finished goods and work in progress includes an appropriate share of production overheads based on normal operating capacity, but excluding borrowing costs. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and estimated costs necessary to make the sale. Value added tax The Russian tax legislation permits settlement of value added tax (VAT) on a net basis. VAT is payable upon invoicing and delivery of goods, performance of work or rendering of services, as well as upon collection of prepayments from customers. VAT on purchases, even if related accounts payable have not been settled at the end of the reporting period, is deducted from the amount of VAT payable. Where provision has been made for impairment of receivables, impairment loss is recorded for the gross amount of the debtor, including VAT. Cash and cash equivalents Cash and cash equivalents, mainly denominated in rubles, comprise cash at bank and in hand and short-term deposits with initial maturity of no more than 90 days.

F-17

OAO Raspadskaya Notes to the consolidated financial statements (Continued)

2.

Significant accounting policies (Continued)

Equity Share capital Ordinary shares are classified as equity. External costs directly attributable to the issue of new shares are shown as a deduction in equity from the proceeds. Any excess of the fair value of consideration received over the par value of shares issued is recognized as additional paid-in capital. Treasury shares Own equity instruments which are acquired by the Group (treasury shares) are deducted from equity. No gain or loss is recognized in statement of comprehensive income on the purchase, sale, issue or cancellation of the treasury shares. Dividends Dividends are recognized as a liability and deducted from equity at the end of the reporting period only if they are declared before or on the end of the reporting period. Dividends are disclosed when they are proposed before the end of the reporting period or proposed or declared after the end of the reporting period but before the financial statements are authorized for issue. Financial liabilities Borrowings Borrowings are initially recognized at the fair value of consideration received, net of directly attributable transaction costs. After initial recognition, borrowings are measured at amortized cost using the effective interest rate method; any difference between the amount initially recognized and the redemption amount is recognized as interest expense over the period of the borrowings. Accounts payable Accounts payable are carried at cost, which is the fair value of the consideration to be paid in the future for goods and services received, whether or not billed to the Group. Government grants Government grants are recognized at their fair value, where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognized as income over the periods necessary to match the grant on a systematic basis to the costs that it is intended to compensate. Grants related to assets are presented in the statement of financial position by deducting the grant in arriving at the carrying amount of the asset and are recognized as a deduction from depreciation expense over the life of the asset. Provisions Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as an interest expense.

F-18

OAO Raspadskaya Notes to the consolidated financial statements (Continued)

2.

Significant accounting policies (Continued)

Provisions for site restoration costs are capitalized in mining assets within property, plant and equipment. Employee benefits Social and pension contributions Defined contributions are made by the Group to the Russian state pension, social insurance, medical insurance and unemployment funds at the statutory rates in force, based on gross salary payments. The Group has no legal or constructive obligation to pay further contributions in respect of those benefits. Its only obligation is to pay contributions as they fall due. These contributions are expensed as incurred. Post-employment benefits The Group companies provide pensions and other benefits to their employees. The entitlement to these benefits is usually conditional on the completion of a minimum service period. Certain benefit plans require the employee to remain in service up to retirement age. Other employee benefits consist of various compensations and non-monetary benefits. The amount of the benefits is stipulated in the collective bargaining agreements and/or in the plan documents. The liability recognized in the statement of financial position in respect of post-employment benefits is the present value of the defined benefit obligation at the end of the reporting period less the fair value of the plan assets, together with adjustments for unrecognized actuarial gains or losses and past service costs. The defined benefit obligation is calculated annually using the projected unit credit method. The present value of the benefits is determined by discounting the estimated future cash outflows using interest rates of high-quality government bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related obligations. Actuarial gains and losses are recognized as income or expense when the cumulative unrecognized actuarial gains or losses for each individual plan exceed 10% of the higher of defined benefit obligation and the fair value of plan assets. The excess of cumulative actuarial gains or losses over the 10% of the higher of defined benefit obligation and the fair value of plan assets are recognized over the expected average remaining working lives of the employees participating in the plan. The past service cost is recognized as an expense on a straight line basis over the average period until the benefits become vested. If the benefits are already vested immediately following the introduction of, or changes to, a pension plan, past service cost is recognized immediately. The defined benefit asset or liability comprises the present value of the defined benefit obligation less past service cost not yet recognized and less the fair value of plan assets out of which the obligations are to be settled directly. The Group includes current service cost, past service cost and net actuarial gains and losses recognized in the year, in cost of sales and general and administrative expenses captions, and interest cost on benefit obligation in interest expense caption of the consolidated statement of comprehensive income. Other costs The Group incurs employee costs related to the provision of benefits such as health services. These amounts principally represent an implicit cost of employment and, accordingly, have been charged to cost of sales. Revenue Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. When goods are sold or services are rendered in exchange for dissimilar goods or services, the revenue is measured at the fair value of the goods or services received, adjusted by the amount of any cash or cash equivalents transferred. When the fair value of the

F-19

OAO Raspadskaya Notes to the consolidated financial statements (Continued)

2.

Significant accounting policies (Continued)

goods or services received cannot be measured reliably, the revenue is measured at the fair value of the goods or services given up, adjusted by the amount of any cash or cash equivalents transferred. The following specific recognition criteria must also be met before revenue is recognized: Sale of goods Revenue is recognized when the significant risks and rewards of ownership of the goods have passed to the buyer and the amount of revenue can be measured reliably. The moment of transfer of the risks and rewards of ownership is determined by the contract terms. Rendering of services Revenue is recognized when services are rendered. The Groups revenues from rendering of services include transportation, operating rent and other services. Interest Interest is recognized using the effective interest method. Dividends Revenue is recognized when the Groups right to receive the payment is established. Current income tax Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to tax authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the end of the reporting period. Current income tax relating to items recognized directly in equity is recognized in equity and not in the statement of comprehensive income. Deferred income tax Deferred tax assets and liabilities are calculated in respect of temporary differences using the liability method. Deferred income tax is provided for all temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes, except where the deferred income tax arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss. A deferred tax asset is recorded only to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilized. Deferred tax assets and liabilities are measured at tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates that have been enacted or substantively enacted at the end of the reporting period. Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

F-20

OAO Raspadskaya Notes to the consolidated financial statements (Continued)

3.

Significant accounting judgments and estimates

Estimation uncertainty The key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Impairment of property, plant and equipment The Group assesses at each reporting date whether there is any indication that an asset may be impaired. If any such indication exists, the Group makes an estimate of the assets recoverable amount. An assets recoverable amount is the higher of an assets or cash-generating units fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or group of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessment of the time value of money and the risks specific to the assets. No impairment losses were recognized or reversed in the years ended 31 December 2011, 2010 and 2009. Useful lives of items of property, plant and equipment The Group assesses the remaining useful lives of items of property, plant and equipment at least at each financial year-end and, if expectations differ from previous estimates, the changes are accounted for as a change in an accounting estimate in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. These estimates may have a material impact on the amount of the carrying values of property, plant and equipment and on depreciation expense for the period. More detailed information on estimations of useful lives of property, plant and equipment is provided in Note 8. Mineral reserves Mineral reserves are a material factor in the Groups computation of depreciation, depletion and amortization charge. The Group estimates its mineral reserves in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code). Estimation of reserves in accordance with JORC Code involves some degree of uncertainty. The uncertainty depends mainly on the amount of reliable geological and engineering data available at the time of the estimate and the interpretation of this data, which also requires use of subjective judgement and development of assumptions. The relative degree of uncertainty can be conveyed by placing reserves into one of the principal classifications, either proved and probable reserves or measured and indicated resources. Proved and probable reserves are more than certain to be recovered than measured and indicated resources. Estimates of proved and probable reserves are reviewed and revised annually. Revisions occur due to the evaluation or re-evaluation of already available geological, engineering and production data; availability of new data; or changes in underlying assumptions. Proved and probable reserves are used to calculate the unit of production rates for depletion. The Group has included in proved and probable reserves those quantities that are expected to be extracted during the next 20 years assuming that certain licenses will be renewed in the future. An increase in the Groups license periods and increase in reported proved and probable reserves would generally lead to lower depletion charge and could materially affect earnings. A reduction in proved and probable reserves will increase depletion charge, reduce income and could also result in an immediate impairment of mining assets. Given the relatively small number of producing mines and open pit operations, it is possible that any changes in reserve estimates, year on year, could significantly affect prospective charges for depletion.

F-21

OAO Raspadskaya Notes to the consolidated financial statements (Continued)

3.

Significant accounting judgments and estimates (Continued)

Site restoration provision The Group reviews site restoration provision at each end of the reporting period, and adjusts it to reflect the current best estimate in accordance with IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities. The amount recognized as a provision is the best estimate of the expenditure required to settle the present obligation at the end of the reporting period. The risks and uncertainties that inevitably surround many events and circumstances are taken into account in reaching the best estimate of a provision. Considerable judgment is required in forecasting future site restoration costs. Future events that may affect the amount required to settle an obligation are reflected in the amount of a provision where there is sufficient objective evidence that they will occur. More detailed information on estimations of mineral reserves and site restoration provision is provided in Notes 8 and 18, respectively. Fair values of assets and liabilities acquired in business combinations The Group recognizes separately, at the acquisition date, the identifiable assets, liabilities and contingent liabilities acquired or assumed in a business combination at their fair values, which involves estimates. Such estimates are based on valuation techniques which require considerable judgment in forecasting future cash flows and developing other assumptions. Post-employment benefits The Group uses actuarial valuation method for measurement of the present value of post-employment benefit obligations and related current service cost. This involves the use of demographic assumptions about the future characteristics of the current and former employees who are eligible for benefits (mortality, both during and after employment, rates of employee turnover, disability and early retirement, etc.) as well as financial assumptions (discount rate, future salary and benefit levels, etc.). More details on post-employment benefits are provided in Note 17. Allowances for doubtful accounts The Group makes allowances for doubtful accounts to account for estimated losses resulting from the inability of customers to make required payments. When evaluating the adequacy of an allowance for doubtful accounts, management bases its estimates on the current overall economic conditions, the ageing of accounts receivable balances, historical write-off experience, customer creditworthiness and changes in payment terms. Changes in the economy, industry or specific customer conditions may require adjustments to the allowance for doubtful accounts recorded in the consolidated financial statements. More detailed information on allowances for doubtful accounts is provided in Note 12. Current taxes Russian tax, currency and customs legislation is subject to varying interpretations and changes occurring frequently. Further, the interpretation of tax legislation by tax authorities as applied to the transactions and activity of the Groups entities may not coincide with that of management. As a result, tax authorities may challenge transactions and the Groups entities may be assessed additional taxes, penalties and interest, which can be significant. In Russia the periods remain open to review by the tax and customs authorities with respect to tax liabilities for three calendar years preceding the year of review. Under certain circumstances reviews may cover longer periods. More details on current taxes are provided in Note 21. Deferred income tax assets Deferred tax assets are reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. The estimation of that probability includes judgments based on the expected performance.

F-22

OAO Raspadskaya Notes to the consolidated financial statements (Continued)

3.

Significant accounting judgments and estimates (Continued)

Various factors are considered to assess the probability of the future utilization of deferred tax assets, including past operating results, operational plan, expiration of tax losses carried forward, and tax planning strategies. If actual results differ from that estimates or if these estimates must be adjusted in future periods, the financial position, results of operations and cash flows may be negatively affected. In the event that the assessment of future utilization of deferred tax assets must be reduced, this reduction will be recognized in the statement of comprehensive income. 4. Business combination

On 28 April 2010, the Group acquired a 100% ownership interest in ZAO Koksovaya, an coking coal mine located in Mezhdurechensk, from Evraz, for a cash consideration of 1,162,492,000 rubles (US$40,000,000 at the exchange rate of the Bank of Russia as at the date of the transaction). As a result, the financial position and the results of operations of ZAO Koksovaya were included in the Groups consolidated financial statements beginning 28 April 2010. ZAO Koksovaya owns the license for Tomusinskaya 5-6 coking coal deposit. Under the deal, in May 2010 we signed a 10-year contract for delivery of a part of coal produced by Koksovaya and Raspadskaya-Koksovaya mines to Evraz at market price and in accordance with existing commercial practice. Fair values of identifiable assets, liabilities and contingent liabilities of ZAO Koksovaya
28 April 2010 US$000

Mineral reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property, plant and equipment (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . Deferred income tax liabilities . . . Post-employment benefits liabilities Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

15,479 144,711 160,190 3,761 5,979 169,930 24,537 492 166 25,195 144,735 40,000 104,735

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fair value of consideration transferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain from a bargain purchase of subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The amount of fair values of net identifiable assets exceeds the fair value of consideration transferred. The Group reviewed the procedures it used to identify and measure the assets acquired and liabilities assumed and the consideration transferred. After the review, the Group decided that the procedures and resulting measures were appropriate. As a result, the Group recognized gain on a bargain purchase of subsidiary in the year ended 31 December 2010. Management believes that this transaction resulted in gain due to the ability of the Group to extract the coal reserves of ZAO Koksovaya using existing mining facilities of ZAO Raspadskaya-Koksovaya without any significant additional capital expenditures. Cash flow on the acquisition
US$000

Net cash acquired with the subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash outflow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5,979 (40,000) (34,021)

F-23

OAO Raspadskaya Notes to the consolidated financial statements (Continued)

4.

Business combination (Continued)

For the period 28 April to 31 December 2010, ZAO Koksovaya reported net profit amounting to US$4,478,000. As the acquired subsidiary did not prepare financial statements in accordance with IFRS before the business combination, it is impracticable to determine revenues and net profit of the combined entity for the year ended 31 December 2010 assuming that the business combination had occurred on 1 January 2010. 5. Revenue

Distribution of the Groups revenue by country

2011 Amount US$000 Portion of revenue Amount US$000 2010 Portion of revenue Amount US$000 2009 Portion of revenue

Russia . . . . . . . . . Ukraine . . . . . . . . China . . . . . . . . . Republic of Korea Japan . . . . . . . . . Hungary . . . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

720,592 5,509 726,101

99% 1% 100%

536,109 37,572 73,383 58,542 705,606

76% 5% 10% 9% 100%

361,829 84,845 21,043 12,843 11,115 5,372 497,047

73% 17% 4% 3% 2% 1% 100%

Revenues from the Groups major customers

2011 Amount US$000 Portion of revenue Amount US$000 2010 Portion of revenue Amount US$000 2009 Portion of revenue

Evraz . . . . . . . MMK . . . . . . . Kemerovo-Koks NLMK . . . . . . Mechel . . . . . . CITIC Metal . . Daewoo . . . . . . Alchevskkoks . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

202,478 181,199 156,694 76,001 50,064 666,436

28% 25% 22% 10% 7% 92%

191,597 89,250 136,081 66,838 37,538 57,501 40,511 619,316

27% 13% 19% 9% 5% 8% 6% 87%

103,595 68,106 63,570 64,558 48,351 9,596 1,246 28,695 387,717

21% 14% 13% 13% 10% 2% 0% 6% 79%

6.

Expenses
2011 US$000 2010 US$000 2009 US$000

Cost of inventories recognised as expense . . . . . . . . . . . . . . . . . . . . . . Staff cost, including payroll taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation, depletion and amortisation . . . . . . . . . . . . . . . . . . . . . . Accident at Raspadskaya mine

102,390 175,039 124,952

68,807 129,058 110,563

50,348 92,961 74,692

On 9 May 2010, a major accident occurred at Raspadskaya mine resulting in deaths and injuries to employees and rescuers. 91 miners and rescuers have been killed. As a consequence of the accident, property, plant and equipment was damaged and the mine has suspended its operations. Currently, Raspadskaya mine is under reconstruction.

F-24

OAO Raspadskaya Notes to the consolidated financial statements (Continued)

6.

Expenses (Continued)

In 2010, the accident resulted in an additional loss on disposal of property, plant and equipment in the amount of US$39,395,000 (Note 8) and an increase in other operating expenses in the amount of US$79,832,000, which includes compensatory payments to the families of killed and injured employees and rescuers in the amount of US$6,336,000. In 2011, other operating expenses include US$84,120,000 relating to the mine restoration costs, making restoration expenses US$163,952,000 in 2010-2011. As of 31 December 2011, management believes that the total cost of the mine restoration will not exceed US$280,000,000. 7. Income tax

Major components of income tax expense

2011 US$000 2010 US$000 2009 US$000

Current income tax: Current income tax charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments in respect of income tax of prior years . . . . . . . . . . . . Deferred income tax: Relating to origination and reversal of temporary differences . . . . . . Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(79,218) (975) 38,622 (41,571)

(73,746) 2,322 31,636 (39,788)

(35,389) 1,428 995 (32,966)

Russia was the only tax jurisdiction in which the Groups income was subject to taxation. Reconciliation between the income tax expenses applicable to the profit before income tax at the statutory tax rate to the income tax expense at the Groups effective income tax rate is set out in the following table:
2011 US$000 2010 US$000 2009 US$000

Profit before income tax . . . . . . . . . . . . . . . . . . . . . . . . . . Tax at the Russian statutory income tax rate of 20% . . . . . . Adjustments in respect of previous years . . . . . . . . . . . . . . Effect of the difference in tax rates . . . . . . . . . . . . . . . . . . Effect of non-taxable income . . . . . . . . . . . . . . . . . . . . . . . Effect of non-deductible expenses and other non-temporary differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

177,288 (35,458) (975) 372 (5,510) (41,571)

284,106 (56,821) 2,322 (237) 20,947 (5,999) (39,788)

150,103 (30,021) 1,428 (64)

.......

(4,309) (32,966)

Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-25

OAO Raspadskaya Notes to the consolidated financial statements (Continued)

7.

Income tax (Continued)

Movement in deferred income tax assets and liabilities

Change recognized as income tax expense US$000 Change recognized in other comprehensive income US$000

At 31 December 2011 US$000

Translation difference US$000

At 31 December 2010 US$000

Deferred income tax liabilities: Property, plant and equipment Investments . . . . . . . . . . . . . . Inventory . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . .

. . . .

. . . .

. . . .

. . . .

. . . .

137,577 372 550 4,003 142,502

(6,811) 279 2,212 (4,320) (621) 36,039 (1,116) 34,302 38,622 30,393 (8,229)
Change recognized in other comprehensive income US$000

(126) (126) 126 126

(7,518) (16) (41) (304) (7,879) (150) (4,105) (99) (4,354) 3,525 (3,866) (7,391)

151,906 514 312 2,095 154,827 3,825 17,997 3,696 25,518 (129,309) 22,553 151,862

Deferred income tax assets: Accrued liabilities . . . . . . . . . . . . . . Loss carry forward . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . Total deferred income tax asset/ (liability) . . . . . . . . . . . . . . . . . . . . Represented by the following: Net deferred income tax asset . . . . . . . Net deferred income tax liability . . . . .

3,054 49,931 2,481 55,466 (87,036) 49,206 136,242

Change recognized as income tax expense US$000

At 31 December 2010 US$000

Change due to business combination US$000

Translation difference US$000

At 31 December 2009 US$000

Deferred income tax liabilities: Property, plant and equipment . . . . . Investments . . . . . . Inventory . . . . . . . . Other . . . . . . . . . . Deferred income tax assets: . . . . . . . . . Accrued liabilities Loss carry forward Other . . . . . . . . .

. . . .

. . . .

. . . .

151,906 514 312 2,095 154,827

(12,355) 105 1,683 (10,567)

104 104

24,545 24,545

(2,179) (4) (1) (10) (2,194) (22) (65) (23) (110) 2,084 (89) (2,173)

141,895 414 208 422 142,939 2,040 308 2,203 4,551 (138,388) 2,108 140,496

. . . .

. . . .

. . . .

. . . .

3,825 17,997 3,696 25,518

1,799 17,754 1,516 21,069 31,636

(104)

8 8 (24,537)

Total deferred income tax asset/(liability) . . . . . . . Represented by the following: . . . . . . . . . . Net deferred income tax asset . . . . . . . . . . . . . . Net deferred income tax liability . . . . . . . . . . . .

(129,309)

22,553 151,862

20,534 (11,102)

104

24,537

F-26

OAO Raspadskaya Notes to the consolidated financial statements (Continued)

7.

Income tax (Continued)

Change recognized in other comprehensive income US$000

At 31 December 2009 US$000

Change recognized as income tax expense US$000

Translation difference US$000

At 31 December 2008 US$000

Deferred income tax liabilities: Property, plant and equipment Investments . . . . . . . . . . . . . . Inventory . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . .

. . . .

. . . .

. . . .

. . . .

. . . .

141,895 414 208 422 142,939

(709) 138 (175) (746) 681 172 (604) 249 995 1,130 135

274 274 (274) 274

(4,228) 10 4 (25) (4,239) (6) 4 (111) (113) 4,126 29 (4,097)

146,832 130 66 622 147,650 1,365 132 2,918 4,415 (143,235) 949 144,184

Deferred income tax assets: Accrued liabilities . . . . . . . . . . . . . . Loss carry forward . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . Total deferred income tax asset/ (liability) . . . . . . . . . . . . . . . . . . . . Represented by the following: Net deferred income tax asset . . . . . . . Net deferred income tax liability . . . . .

2,040 308 2,203 4,551 (138,388) 2,108 140,496

The current tax rate for dividend income in Russia ranges from 0% to 15%, depending on certain conditions. No deferred income tax on distribution of earnings has been provided as the Group does not plan to distribute earnings. 8. Property, plant and equipment
2011 US$000 2010 US$000 2009 US$000

At 31 December: Cost: Land . . . . . . . . . . . . . . . . . . Mining assets . . . . . . . . . . . . Buildings and constructions . . Machinery and equipment . . . Transport and motor vehicles Other assets . . . . . . . . . . . . . Assets under construction . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

54 1,035,828 125,515 519,707 70,518 12,788 225,608 1,990,018

57 1,073,706 117,832 484,553 56,109 12,231 237,736 1,982,224 (176,661) (18,375) (232,627) (18,871) (5,796) (452,330) 1,529,894

58 1,022,079 109,482 512,496 32,573 9,596 204,499 1,890,783 (211,316) (13,598) (236,228) (14,326) (5,607) (481,075) 1,409,708

Accumulated depreciation and depletion: Mining assets . . . . . . . . . . . . . . . . . . . Buildings and constructions . . . . . . . . . Machinery and equipment . . . . . . . . . . Transport and motor vehicles . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

(210,077) (22,028) (265,094) (25,718) (5,322) (528,239) 1,461,779

F-27

OAO Raspadskaya Notes to the consolidated financial statements (Continued)

8.

Property, plant and equipment (Continued)

Movement in property, plant and equipment

Buildings Machinery Transport Assets Mining and and and motor Other under assets constructions equipment vehicles assets construction US$000 US$000 US$000 US$000 US$000 US$000

Land US$000 At 31 December 2010, cost, net of accumulated depreciation, depletion and government grants . . . . . . . . . . . . . . . . . Additions . . . . . . . . . . . . . . . . Assets put into operation . . . . . . Reversal of the value of assets written off in prior periods . . . Disposals . . . . . . . . . . . . . . . . Reclassification . . . . . . . . . . . . Depreciation and depletion charge Change in site restoration provision . . . . . . . . . . . . . . . Translation difference . . . . . . . . At 31 December 2011, cost, net of accumulated depreciation, depletion and government grants . . . . . . . . . . . . . . . . .

Total US$000

57

897,045 21,599 2,887 (46,987)

99,457 15,521 7 (127) (5,168) (6,203)

251,926 86,238 3,616 (5,806) 13 (66,724) (14,650)

37,238 21,776 (780) (12) (10,520) (2,902)

6,435 2,939 (335) (1) (2,005) 907 (474)

237,736 130,597 (126,474) (616) (2,887) (12,748)

1,529,894 152,196 3,623 (7,664) (131,404) (2,222) (82,644)

(3,129) (3) (45,664)

54

825,751

103,487

254,613

44,800

7,466

225,608

1,461,779

Land US$000 At 31 December 2009, cost, net of accumulated depreciation, depletion and government grants . . . . . . . . . . . . . . . Additions . . . . . . . . . . . . . . Assets put into operation . . . . . . Assets acquired in business combination . . . . . . . . . . . . . Disposals . . . . . . . . . . . . . . . . Reclassification . . . . . . . . . . . . Depreciation and depletion charge Change in site restoration provision . . . . . . . . . . . . . . . Translation difference . . . . . . . . At 31 December 2010, cost, net of accumulated depreciation, depletion and government grants . . . . . . . . . . . . . . . . .

Buildings Machinery Transport Assets Mining and and and motor Other under assets constructions equipment vehicles assets construction US$000 US$000 US$000 US$000 US$000 US$000

Total US$000

58

810,763 16,025 109,740 8,050 (44,964)

95,884 5,534 6,539 (467) (1,660) (5,344) (1,029)

276,268 61,121 21,864 (47,383) (562) (56,412) (2,970)

18,247 21,650 3,847 (406) 332 (6,060) (372)

3,989 1,005 62 (95) 2,258 (1,431) 688 (41)

204,499 115,720 (89,310) 18,138 (1,093) (8,418) 664 (2,464)

1,409,708 131,745 160,190 (49,444) (114,211) 9,993 (18,087)

8,641 (1) (11,210)

57

897,045

99,457

251,926

37,238

6,435

237,736

1,529,894

F-28

OAO Raspadskaya Notes to the consolidated financial statements (Continued)

8.

Property, plant and equipment (Continued)

Buildings Machinery Transport Assets Mining and and and motor Other under assets constructions equipment vehicles assets construction US$000 US$000 US$000 US$000 US$000 US$000

Land US$000 At 31 December 2008, cost, net of accumulated depreciation, depletion and government grants . . . . . . . . . . . . . . . . . Additions . . . . . . . . . . . . . . . . Assets put into operation . . . . . . Disposals . . . . . . . . . . . . . . . . Reclassification . . . . . . . . . . . . Depreciation & depletion charge . Translation difference . . . . . . . . At 31 December 2009, cost, net of accumulated depreciation, depletion and government grants . . . . . . . . . . . . . . . . .

Total US$000

847,846 29,773 (42,041) (2) (24,815)

60

77,141 23,729 (116) (2) (3,641) (1,227)

147,795 155,240 (1,403) 478 (27,806) 1,964

21,935 1,765 (135) (528) (4,021) (769)

3,780 2,139 (23) 2 (1,816) (93)

262,396 134,886 (182,873) (115) 50 (9,845)

1,360,953 164,659 (1,792) (79,325) (34,787)

58

810,763

95,884

276,268

18,247

3,989

204,499

1,409,708

Assets under construction include prepayments to constructors and suppliers of property, plant and equipment in the amount of US$3,680,000, US$6,796,000 and US$3,439,000 as at 31 December 2011, 2010 and 2009 respectively. The Group had production equipment with a carrying value of US$7,392,000, zero and US$215,000 pledged to banks as collateral against loans to the Group as at 31 December 2011, 2010 and 2009 respectively. The amounts of borrowing costs capitalized were zero, US$375,000 and US$1,560,000 in the years ended 31 December 2011, 2010 and 2009 respectively. On 31 December 2011, based on inspections conducted by management, a reversal of the value of some of the assets located in the disaster area and written off in 2010 was made. The corresponding amount of US$3,623,000 was included in other operating income in the statement of comprehensive income. On 31 December 2011, following an independent valuation, the amounts of mineral reserve and future capital expenditures were changed, and necessary adjustments were made. The change resulted in a decrease in depletion expense by US$3,956,000 as compared to the amount that would have been charged in the financial statements for the year ended 31 December 2011 if the amounts of mineral reserve and future capital expenditures had not been changed. On 31 December 2010, following an independent valuation, the amounts of mineral reserve and future capital expenditures were changed, and necessary adjustments were made. The change resulted in a decrease in depletion expense by US$2,669,000 as compared to the amount that would have been charged in the financial statements for the year ended 31 December 2010 if the amounts of mineral reserve and future capital expenditures had not been changed.

F-29

OAO Raspadskaya Notes to the consolidated financial statements (Continued)

9.

Other non-current assets

2011 US$000 2010 US$000 2009 US$000

At 31 December: Available-for-sale investments: Quoted equity shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unquoted equity shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans to employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term bank deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,862 231 2,093 2,466 699 5,258

2,576 244 2,820 2,464 434 5,718

2,072 246 2,318 2,091 31,242 307 35,958

10. Short-term bank deposits and cash and cash equivalents Short-term bank deposits
2011 US$000 2010 US$000 2009 US$000

At 31 December: Russian rubles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US dollars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Euro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

19,878 60,301 80,179

18,046 140,338 158,384

83,348 64,970 1,635 149,953

The above short-term deposits are non-restricted deposits placed in Russian state banks and affiliates of international banks with initial maturity of more than 90 days. Cash and cash equivalents
2011 US$000 2010 US$000 2009 US$000

At 31 December: Russian rubles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US dollars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Euro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

112,955 67,145 180,100

159,956 2,499 2,173 164,628

19,338 7,498 1,441 28,277

The above cash and cash equivalents mainly consisted of cash at banks. 11. Inventories
2011 US$000 2010 US$000 2009 US$000

At 31 December: Raw materials and spare parts (at cost) . . . . . . . . . . . . . . . . . . . . . . . . . Finished goods (at cost) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

74,259 9,787 84,046

71,493 5,706 77,199

40,235 4,039 44,274

F-30

OAO Raspadskaya Notes to the consolidated financial statements (Continued)

12. Trade and other receivables and prepayments

2011 US$000 2010 US$000 2009 US$000

At 31 December: Trade accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

54,834 4,895 5,636 65,365 (718) 64,647

39,496 12,798 8,633 60,927 (849) 60,078

73,542 17,800 2,102 93,444 (1,674) 91,770

As at 31 December 2011, 2010 and 2009, receivables in the total amount of US$718,000, US$849,000 and US$1,674,000, respectively, were doubtful and fully provided for. Movement in the allowance for doubtful accounts
2011 US$000 2010 US$000 2009 US$000

At 1 January . . . . . . . . . . Charge for the year . . . . . Amounts written off . . . . Unused amounts reversed Translation difference . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

849 706 (799) (1) (37) 718

1,674 35 (850) (10) 849

1,050 1,054 (394) (37) 1 1,674

At 31 December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13. Related party disclosures

Related parties may enter into transactions which unrelated parties might not, and transactions between related parties may not be effected on the same terms, conditions and amounts as transactions between unrelated parties. Transactions with related parties
Sales to related parties 2011 2010 2009 US$000 US$000 US$000 Purchases from related parties 2011 2010 2009 US$000 US$000 US$000

Evraz ZSMK . . . . . . . . TC EvrazHolding . . . . . Evraz NTMK . . . . . . . . Southern Kuzbass . . . . . EvrazResource-Ukraine . RSPK . . . . . . . . . . . . . TH EvrazResource . . . . Yuzhkuzbassugol . . . . . Sibirsky Spas . . . . . . . . Other entities . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

107,681 50,073 39,214 6,040 5,509 391 10 100 209,018

156,966 3,230 34,367 90 264 3 1,275 196,195

50,031 2,370 37,687 146 15,854 298 32 106,418

8,595 4,410 5 1,118 2,064 16,192

10,686 1,361 54,889 1,400 3,382 71,718

10,557 1,544 187 2,131 14,419

F-31

OAO Raspadskaya Notes to the consolidated financial statements (Continued)

13. Related party disclosures (Continued) Amounts owed by/to related parties
Amounts due from related parties 2011 2010 2009 US$000 US$000 US$000 Amounts due to related parties 2011 2010 2009 US$000 US$000 US$000

At 31 December: Evraz ZSMK . . . . . . . . TC EvrazHolding . . . . . Evraz NTMK . . . . . . . . Southern Kuzbass . . . . . EvrazResource-Ukraine RSPK . . . . . . . . . . . . . TH EvrazResource . . . . Yuzhkuzbassugol . . . . . Sibirsky Spas . . . . . . . . Other entities . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

25,764 11,656 629 1,530 98 105 3 39,785

32,169 106 79 244 3 20 32,621

52,005 67 20,993 152 80 6 81 1 73,385

1,539 316 1 109 297 2,262

1,420 195 700 16 18 155 2,504

579 8 32 655 1,274

Evraz ZSMK (OAO EVRAZ United West-Siberian Iron and Steel Plant) is an entity under control of Evraz. In the year ended 31 December 2011, the Group sold to the entity raw coal and coal concentrate. These sales accounted for approx. 17% of the Groups total sales volumes of coal products. TC EvrazHolding (OOO Trade Company EvrazHolding) is an entity under control of Evraz. In the years ended 31 December 2011, 2010 and 2009, the Group sold to the entity raw coal and coal concentrate and bought from it certain steel products. In February 2011 an agreement with TC EvrazHolding on purchasing coal products from the Group for ZSMK and NTMK was terminated and replaced with separate agreements with these two companies. In the years ended 31 December 2011, 2010 and 2009, the Group sold to the entity approx. 9%, 24% and 9% of the total sales volumes of coal products, respectively. Evraz NTMK (OAO EVRAZ Nizhny Tagil Iron and Steel Plant) is an entity under control of Evraz. In the year ended 31 December 2011, the Group sold to the entity coal concentrate. These sales accounted for approx. 5% of the Groups total sales volumes of coal concentrate. Southern Kuzbass (OAO Southern Kuzbass Coal Company), a Russian coal mining company controlled by OAO Mechel, is a minority shareholder of a subsidiary of the Group. The subsidiary renders transportation services to the Group and to Southern Kuzbass. EvrazResource-Ukraine (OOO Trade House EvrazResource-Ukraine) is an entity under control of Evraz. In the years ended 31 December 2011, 2010 and 2009, the Group sold to the entity coal concentrate. These sales accounted for approx. 1%, 6% and 9% of the Groups total sales volumes of coal products in the years ended 31 December 2011, 2010 and 2009, respectively. RSPK (OOO Raspadskaya Constructing Industrial Company) is an entity under control of the shareholders of Adroliv. The entity provides cleaning and renovating services to the Group. TH EvrazResource (OOO Trade House EvrazResource) is an entity under control of Evraz. In the year ended 31 December 2009, the Group sold to the entity coal concentrate. These sales accounted for approx. 4% of the Groups total sales volumes of coal products. Yuzhkuzbassugol (OAO Yuzhkuzbassugol Combined Coal Company) is an entity under control of Evraz. On 28 April 2010, the Group bought from it ZAO Koksovaya and certain items of property, plant and equipment related to the acquisition. Other transactions with the entity were insignificant. Sibirsky Spas (ZAO Sibirsky Spas Insurance Company) is an entity under control of the shareholders of Adroliv. The entity provides insurance services to the Group.

F-32

OAO Raspadskaya Notes to the consolidated financial statements (Continued)

13. Related party disclosures (Continued) As at 31 December 2011, 2010 and 2009, the Group had prepayments to related parties for property, plant and equipment in the amount of US$149,000, US$106,000 and US$5,000, respectively. Compensation to key management personnel Key management personnel totaled 9 people as at 31 December 2011, 2010 and 2009. Total compensation to key management personnel was included in general and administrative expenses in the statement of comprehensive income and consisted of the following:
2011 US$000 2010 US$000 2009 US$000

Short-term benefits: Salary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bonus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payroll taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,565 425 66 4,056

3,179 52 3,231

2,218 2,100 82 4,400

14. Other taxes recoverable

2011 US$000 2010 US$000 2009 US$000

At 31 December: Input VAT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9,676 685 10,361

15,057 809 15,866

10,582 554 11,136

Input VAT, representing amounts payable or paid to suppliers, is recoverable from the tax authorities via offset against VAT payable to the tax authorities on the Groups revenue or direct cash receipts from the tax authorities. Management periodically reviews the recoverability of the balance of input VAT and believes it is fully recoverable within one year. 15. Equity Share capital As at 31 December 2011, 2010 and 2009, the Companys issued and fully paid number of shares consisted of 780,799,809 ordinary shares with par value 0.004 rubles each; the authorized share capital consisted of 1,478,811,096 ordinary shares. Reserve capital According to the Russian law, the Group creates a reserve capital in the amount of 5% of share capital per Russian statutory accounts by annual appropriations which should be at least 5% of the annual net profit per statutory financial statements. The reserve capital can be used only for covering losses and for redemption of the Companys bonds and purchase of own shares if there are no other sources of financing. Earnings per share Earnings per share is calculated by dividing the net income attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares in issue during the period. The Company has no potentially dilutive ordinary shares therefore the diluted earnings per share is equal to the basic earnings per share.

F-33

OAO Raspadskaya Notes to the consolidated financial statements (Continued)

15. Equity (Continued) Dividends On 25 August 2011, shareholders of the Company decided to pay interim dividends for 2011 in the amount of 3,903,999,045 rubles (US$135,168,321 at the exchange rate as at 26 August 2011), which represents 5.00 rubles (US$0.17 at the exchange rate as at 26 August 2011) of dividends per share. Shares buyback programme On 15 November 2011, the Company made an offer to its shareholders to purchase 78,079,980 own shares, which represent 10% of the Companys share capital. The price for each share was set at 150 rubles. As a result, on 31 December 2011 the Group recognized a liability of US$363,771,000 which planned to be settled using its own cash. On 31 January 2012 the Company completed collection of applications from its shareholders willing to sell the shares. As a result, 78,079,980 shares are currently being bought back on a pro rata basis. The signing of relevant share purchase agreements under the buyback will be completed by the Group on 2 April 2012. 16. Loans and borrowings Loans and borrowings by source
2011 US$000 2010 US$000 2009 US$000

At 31 December: 7.5% notes due 2012 Raiffeisenbank . . . . BSGV . . . . . . . . . . Other Russian banks Interest payable . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

299,846 2,923 2,501 305,270

299,420 3,990 4,684 2,509 310,603

298,995 21,624 8,495 23 2,590 331,727

On 17 May 2007 the Group issued loan participation notes amounting to US$300,000,000. The notes bear an interest of 7.5% per annum payable semi-annually and mature on 22 May 2012. The terms and conditions of the notes provide for certain covenants in respect of the Company and its subsidiaries. The covenants impose restrictions in respect of certain transactions and a financial ratio in respect of indebtedness and profitability. Average annual interest rates
2011 2010 2009

US dollars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Euro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans and borrowings by currency

2011 US$000

7.5% 4.7%

7.5% 3.1%

7.2% 3.9%

2010 US$000

2009 US$000

At 31 December: US dollars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Euro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Russian rubles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

302,346 2,901 23 305,270

301,920 8,659 24 310,603

310,007 21,695 25 331,727

F-34

OAO Raspadskaya Notes to the consolidated financial statements (Continued)

16. Loans and borrowings (Continued) Loans and borrowings by period of repayment
2011 US$000 2010 US$000 2009 US$000

At 31 December: Not more than one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . After one year but not more than two years . . . . . . . . . . . . . . . . . . . After two years but not more than five years . . . . . . . . . . . . . . . . . .

304,027 1,243 305,270

8,216 301,115 1,272 310,603

28,407 4,325 298,995 331,727

17. Employee benefits In accordance with collective bargaining agreements, the Group provides to its employees lump-sum amounts payable at the retirement date. These benefits generally depend on years of service, level of remuneration and amount of pension payment under the collective bargaining agreements. The Group funds the benefits when the amounts of benefits fall due for payment. Defined contribution plans represent payments made by the Group to the Russian state pension, social insurance, medical insurance and unemployment funds at the statutory rates in force, based on gross salary payments. The Group has no legal or constructive obligation to pay further contributions in respect of those benefits. Defined Contribution Plans The Groups expenses under defined contribution plans were as follows:
2011 US$000 2010 US$000 2009 US$000

Expense under defined contribution plans . . . . . . . . . . . . . . . . . . . . . . . Defined Benefit Plans

48,111

27,671

19,202

The principal assumptions used in determining pension obligations for the Groups plan are shown in the following table:
2011 2010 2009

Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Future benefits increases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Future salary increases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Groups defined benefit plan is unfunded.

8.0% 8.0% 8.0%

8.0% 8.0% 8.0%

8.0% 8.0% 8.0%

The components of net benefit expense recognized in the consolidated statement of comprehensive income for the years ended 31 December 2011, 2010 and 2009 and amounts recognized in the consolidated

F-35

OAO Raspadskaya Notes to the consolidated financial statements (Continued)

17. Employee benefits (Continued) statement of financial position as at 31 December 2011, 2010 and 2009 for the defined benefit plan were as follows: Net benefit expense (recognized in cost of sales and general and administrative expenses)
2011 US$000 2010 US$000 2009 US$000

Current service cost . . . . . . . . . . . . . . . . . . . . Interest cost on benefit obligation . . . . . . . . . Net actuarial gain/(loss) recognized in the year Past service cost . . . . . . . . . . . . . . . . . . . . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

2,352 3,485 (1,311) 216 4,742

1,287 2,526 112 47 3,972

1,025 1,852 511 3,388

Net benefit liability

2011 US$000 2010 US$000 2009 US$000

At 31 December: Benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrecognized net actuarial losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrecognized past service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

44,424 (21,909) 530 23,045

41,825 (20,240) 615 22,200

26,102 (6,560) 19,542

Movement in benefit obligation

2011 US$000 2010 US$000 2009 US$000

At 1 January . . . . . . . . . . . . . . . . . Change due to business combination Benefit expense . . . . . . . . . . . . . . . Past service cost . . . . . . . . . . . . . . . Benefits paid . . . . . . . . . . . . . . . . . Actuarial losses on obligation . . . . . Translation difference . . . . . . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

41,825 5,837 248 (2,517) 1,702 (2,671) 44,424

26,102 492 3,813 (567) (1,625) 13,890 (280) 41,825

23,498 2,877 (984) 1,231 (520) 26,102

At 31 December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The following table is a summary of the present value of the benefit obligation and experience adjustments for the current year and previous four annual periods.
2011 US$000 2010 US$000 2009 US$000 2008 US$000 2007 US$000

At 31 December: Defined benefit obligation . . . . . . . . . . . . . . . . Deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Experience adjustments on plan liabilities . . . . .

(44,424) (44,424) (1,911)

(41,825) (41,825) (12,859)

(26,102) (26,102) (1,334)

(23,498) (23,498) (3,722)

(31,160) (31,160) 7,516

F-36

OAO Raspadskaya Notes to the consolidated financial statements (Continued)

18. Site restoration provision Site restoration costs Under the Russian law, mining companies have obligations to restore mining sites. The respective liabilities were measured based on estimates of restoration costs which are expected to be incurred in the future discounted at the annual rate of 8%, 8% and 10% for the years ended 31 December 2011, 2010 and 2009, respectively. Movement in site restoration provision
2011 US$000 2010 US$000 2009 US$000

At 1 January . . . . . . . Charge for the year . . Change in provision . . Translation difference .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

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. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

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. . . .

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. . . .

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. . . .

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. . . .

. . . .

. . . .

11,703 971 (2,221) (516) 9,937

1,567 156 9,993 (13) 11,703

1,466 136 (35) 1,567

At 31 December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19. Trade and other payables

2011 US$000

2010 US$000

2009 US$000

At 31 December: Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued payroll . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

29,844 5,605 10,414 45,863

25,041 6,536 9,511 41,088

27,176 9,077 7,157 43,410

20. Other taxes payable

2011 US$000 2010 US$000 2009 US$000

At 31 December: VAT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

16,487 8,850 25,337

17,661 7,743 25,404

19,163 7,286 26,449

21. Commitments and contingencies Operating environment of the Group The Group is one of the biggest coking coal producers in Russia. Russia continues economic reforms and development of its legal, tax and regulatory frameworks as required by a market economy. The future stability of the Russian economy is largely dependent on these reforms and developments and the effectiveness of economic, financial and monetary measures undertaken by the government. The Russian economy is vulnerable to market downturns and economic slowdowns elsewhere in the world. In 2011 the Russian Government continued to take measures to support the economy in order to overcome the consequences of the global financial crisis. Despite some indications of recovery there continues to be some uncertainty regarding further economic growth, access to capital and cost of capital, which could negatively affect the Groups future financial position, results of operations and business prospects.

F-37

OAO Raspadskaya Notes to the consolidated financial statements (Continued)

21. Commitments and contingencies (Continued) While management believes it is taking appropriate measures to support the sustainability of the Groups business in the current circumstances, unexpected further deterioration in the areas described above could negatively affect the Groups results and financial position in a manner not determinable now. Taxation The Russian tax, currency and customs legislation is subject to varying interpretations and changes, which can occur frequently. Managements interpretation of such legislation as applied to the transactions and activity of the Group may be challenged by the relevant regional and federal authorities. Recent events within Russia suggest that tax authorities are taking a more assertive position in their interpretation of the legislation and assessments and, as a result, it is possible that transactions and activities that have not been challenged in the past may be challenged. As such, significant additional taxes, fines and penalties may be assessed. Management believes that its interpretations of the relevant legislation are appropriate and that it has paid or accrued all taxes that are applicable. Where uncertainty exists, the Group has accrued tax liabilities based on the managements best estimate of the probable outflow of resources embodying economic benefits, which will be required to settle these liabilities. On 30 December 2011 the Russian Ministry of Finance issued an interpretation of certain provisions of the Tax Code which states that special purpose entities set up in Ireland to issue Eurobonds are not eligible for the benefits of the double tax treaty between Ireland and Russia. If this view were to be enforced by the Russian tax authorities and applied to other structured entities set up for issuing bonds from any foreign jurisdiction, the Group could face claims to pay a fine at 20% of tax not withheld on interest paid on Eurobonds for the period from 2009 to 2011, late payment interest and potentially a tax which should have been withheld at the rate of 20% from that interest. Subsequently, the ministry announced its plans to introduce legislation to clarify this issue. If such legislation is adopted as proposed by the ministry, this tax contingency will be eliminated for 2011 and for prior periods. No withholding taxes or fines have been accrued in these financial statements. Management believes that the Groups tax position with respect to Eurobonds is sustainable and that the resolution of this contingency will not have a material effect on the consolidated financial statements of the Group. Contractual commitments The Group was a party to executory contracts for the purchase of production equipment and construction works for the amount of US$16,008,000 as at 31 December 2011. Social commitments The Group is involved in a number of social programs aimed to support education, health care and social infrastructure development in the towns where the Groups assets are located. In 2012 the Group plans to spend US$6,370,000 under these programs. Environmental protection The Group may be subject to environmental claims and legal proceedings. The quantification of environmental exposures requires an assessment of many factors, including changing laws and regulations, improvements in environmental technologies, the quality of information available related to specific sites, the assessment stage of each site investigation, preliminary findings and the length of time involved in remediation or settlement. Management believes that any pending environmental claims or proceedings will not have a material adverse effect on the Groups financial position or results of operations. Under the Plan on environmental protection for the years 2011-2015 authorized by management, the Group expects to spend US$31,105,000 in 2012.

F-38

OAO Raspadskaya Notes to the consolidated financial statements (Continued)

21. Commitments and contingencies (Continued) Insurance policies The Group maintains obligatory insurance policies required by the Russian law. The Group holds no insurance policies in relation to its major production facilities, or in respect of public liability. FASs decision on infringement of antimonopoly legislation by the Company On 10 November 2011, as a consequence of the investigation on the Groups abuse of coking coal market, the Federal Antimonopoly Service of Russia (FAS) imposed a penalty in the amount of 90,493,978 rubles (approx. US$3,006,115 at the exchange rate as at 10 November 2011) for the infringement of antimonopoly legislation in the coking coal market by the Group. Shortly before, the FAS demanded the Company to develop a document on its trading policy in respect of coking coal concentrate sales. Management expects that FAS will approve this document. The Group did not record a provision in respect of the possible penalty, as management believes that the claim is without merit and intends to defend this position in court. 22. Financial risks management objectives and policies Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. Financial assets that potentially expose the Group to concentrations of credit risk consist primarily of cash and trade accounts receivable. To manage credit risk related to cash, the Group maintains its available cash, mainly in Russian rubles in major Russian state banks and reputable Russian affiliates of international banks. Management periodically reviews the creditworthiness of the banks in which it deposits cash. The Groups trade receivables consist of a limited number of customers, to whom the Group sells on credit terms. The Group has developed standard payment terms and constantly monitors the status of accounts receivable collection and the creditworthiness of the customers. There are no significant concentrations of credit risk within the Group. The Group defines counterparties as having similar characteristics if they are related entities. The maximum exposure to credit risk is equal to the carrying amount of financial assets, which is disclosed in the following table:
2011 US$000 2010 US$000 2009 US$000

At 31 December: Financial instruments . . . . . . . . Long-term receivables . . . . . . . . Trade and other receivables . . . . Receivables from related parties . Short-term investments, cash and

............. ............. ............. ............. cash equivalents .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

2,093 2,466 60,033 39,785 260,279 364,656

2,820 2,731 47,329 32,621 323,012 408,513

33,560 2,115 73,970 73,385 178,230 361,260

F-39

OAO Raspadskaya Notes to the consolidated financial statements (Continued)

22. Financial risks management objectives and policies (Continued) Ageing analysis of trade and other receivables
2011 Gross amount US$000 Impairment US$000 Gross amount US$000 2010 Impairment US$000 Gross amount US$000 2009 Impairment US$000

At 31 December: Not past due . . . . . . . . . . . . . . . . Past due: not more than 6 months . . . . . . more than 6 months . . . . . . . . .

101,669 120 932 102,721

437 437

75,949 4,315 3,217 83,481

27 2 771 800

95,736 54,607 801 151,144

304 706 664 1,674

Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Groups approach to managing liquidity is to ensure that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Groups reputation. The Group manages liquidity risk by maintaining adequate cash reserves and borrowing facilities, by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. The Group prepares a detailed financial plan on the monthly basis which ensures that the Group has sufficient cash to meet expected operational expenses, financial obligations and investing activities for a period of 30 days. All of the Groups financial liabilities are non-derivative financial instruments. The following two tables summarize the maturity profile of the Groups financial liabilities based on contractual undiscounted payments, including interest payments.
Not more than 1 year US$000 1 to 2 years US$000 Total US$000

At 31 December 2011: Fixed-rate debt Loans and borrowings Principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Variable-rate debt Loans and borrowings Principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-interest bearing debt Trade and other payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payables to related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

300,022 11,251 311,273

300,022 11,251 311,273

1,658 146 1,804 45,863 2,262 125 48,250 361,327

1,243 47 1,290 1,290

2,901 193 3,094 45,863 2,262 125 48,250 362,617

F-40

OAO Raspadskaya Notes to the consolidated financial statements (Continued)

22. Financial risks management objectives and policies (Continued)

Not more than 1 year US$000

1 to 2 years US$000

2 to 5 years US$000

Total US$000

At 31 December 2010: Fixed-rate debt Loans and borrowings Principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Variable-rate debt Loans and borrowings Principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-interest bearing debt Trade and other payables . . . . . . . . . . . . . . . . . . . . . . . Payables to related parties . . . . . . . . . . . . . . . . . . . . . . Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . .

23 22,501 22,524

300,000 11,250 311,250

300,023 33,751 333,774

5,685 252 5,937 41,088 2,504 178 43,770 72,231

Not more than 1 year US$000

1,695 220 1,915 313,165

1,271 125 1,396 1,396

8,651 597 9,248 41,088 2,504 178 43,770 386,792

1 to 2 years US$000

2 to 5 years US$000

Total US$000

At 31 December 2009: Fixed-rate debt Loans and borrowings Principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Variable-rate debt Loans and borrowings Principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-interest bearing debt Trade and other payables . . . . . . . . . . . . . . . . . . . . . . . Payables to related parties . . . . . . . . . . . . . . . . . . . . . . Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . .

23 22,501 22,524

22,500 22,500

300,000 11,250 311,250

300,023 56,251 356,274

25,794 728 26,522 43,410 1,274 278 44,962 94,008

4,325 35 4,360 26,860

311,250

30,119 763 30,882 43,410 1,274 278 44,962 432,118

Currency risk The Group is exposed to currency risk on sales, purchases, deposits and borrowings that are denominated in a currency other than the Groups functional currency. The currencies in which these transactions are primarily denominated are US dollars and euro.

F-41

OAO Raspadskaya Notes to the consolidated financial statements (Continued)

22. Financial risks management objectives and policies (Continued) The Group does not have formal arrangements to mitigate currency risks of the Groups operations. However, management believes that the Group is secured from currency risks as foreign currency denominated sales are used to cover repayment of foreign currency denominated borrowings. The Groups exposure to currency risk determined as the net monetary position in respective currencies is set out in the following table:
2011 US$000 2010 US$000 2009 US$000

At 31 December: USD/RUB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EUR/RUB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GBP/RUB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sensitivity analysis

(173,657) (6,953)

(161,808) (17,211) 69

(208,974) (25,355)

The following table demonstrates the sensitivity to reasonably possible changes in the respective currencies, with all other variables held constant, of the Groups profit before tax. In estimating a reasonably possible change, the Group assessed the volatility of foreign exchange rates during the three years preceding the end of the reporting period:
2011 Change in Effect on exchange profit rate before tax US$000 2010 Change in Effect on exchange profit rate before tax US$000 2009 Change in Effect on exchange profit rate before tax US$000

USD/RUB . . . . . . . . . . . . . . . . . . EUR/RUB . . . . . . . . . . . . . . . . . . GBP/RUB . . . . . . . . . . . . . . . . . .

(12.50) 12.50 (11.77) 11.77 13.69 (13.69)

21,707 (21,707) 818 (818)

(8.90) 8.90 (11.05) 11.05 (9.65) 9.65

14,401 (14,401) 1,902 (1,902) (7) 7

(14.80) 14.80 (14.00) 14.00 (17.40) 17.40

30,928 (30,928) 3,550 (3,550)

Interest rate risk The Group incurs interest rate risk on loans and borrowings. The Group borrows on both fixed and variable rate basis. The following table summarizes the Groups outstanding interest-bearing debt:
2011 US$000 2010 US$000 2009 US$000

At 31 December: Fixed-rate debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Variable-rate debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

299,868 2,901 302,769

299,443 8,651 308,094

299,018 30,119 329,137

Cash flow sensitivity analysis for variable rate instruments Based on the analysis of exposure during the years presented, reasonably possible changes in floating interest rates at the reporting date would have changed profit before tax by the amounts shown in the

F-42

OAO Raspadskaya Notes to the consolidated financial statements (Continued)

22. Financial risks management objectives and policies (Continued) following table. This analysis assumes that all other variables, in particular foreign currency rates, remain constant.
2011 Change in Effect on exchange profit rate before tax basis points US$000 2010 Change in Effect on exchange profit rate before tax basis points US$000 2009 Change in Effect on exchange profit rate before tax basis points US$000

Liabilities denominated in US dollars Decrease in LIBOR . . . . . . . . . . . . Increase in LIBOR . . . . . . . . . . . . . Liabilities denominated in euro Decrease in EURIBOR . . . . . . . . . Increase in EURIBOR . . . . . . . . . . Capital management

(15) 15 (15) 15

(4) 4

(25) 100 (25) 100

(22) 87

(25) 100 (25) 100

(21) 85 (54) 216

The primary objective of the Groups capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximize shareholder wealth. There were no changes in the objectives, policies and processes of the Groups capital management during 2011. The Group manages its capital structure and makes adjustments to it by issue of new shares, dividend payments and purchase of treasure shares. Fair value of financial instruments The carrying amounts of financial instruments, consisting of cash, short-term investments, short-term accounts receivable and payable, variable rate short-term and variable rate long-term loans payable approximate their fair value. Fair value of 7.5% notes due in 2012 with carrying amount US$299,846,000 is determined by reference to published price quotations in an active market and amounts to US$300,825,000. 23. Events after the reporting period Loan from Raiffeisenbank In the first quarter of 2012, to finance its operating activities, the Group signed a loan agreement with Raiffeisenbank for US$150,000,000 bearing market interest and maturing on 7 February 2014. Credit line from Sberbank In the first quarter of 2012, to repay its loan participation notes, the Group opened a US$300,000,000 two-year credit line at Sberbank. As of the date of authorisation of these financial statements for issue, no borrowings were made under this facility.

F-43

REGISTERED OFFICE OF THE COMPANY Raspadskaya (Open Joint Stock Company) Mira Street 106 652870 Mezhdurechensk Russian Federation

REGISTERED OFFICE OF THE ISSUER Raspadskaya Securities Limited 5 Harbourmaster Place IFSC Dublin 1 Ireland

JOINT LEAD MANAGERS Goldman Sachs International Peterborough Court 133 Fleet Street London EC4A 2BB United Kingdom TD Investments Limited Zachariades Building, Office 301 57 Digeni Akrita Ave. 1071 Nicosia Cyprus Morgan Stanley & Co. International plc 25 Cabot Square Canary Wharf London E14 4QA United Kingdom VTB Capital plc 14 Cornhill London EC3V 3ND United Kingdom

PRINCIPAL PAYING AGENT AND TRANSFER AGENT Citibank, N.A., London Branch 13th Floor Citigroup Centre Canada Square Canary Wharf London E14 5LB United Kingdom

REGISTRAR Citigroup Global Markets Deutschland AG Reuterweg 16 60323 Frankfurt Germany

TRUSTEE Citibank, N.A., London Branch 13th Floor Citigroup Centre Canada Square Canary Wharf London E14 5LB United Kingdom

LEGAL ADVISERS To the Joint Lead Managers as to English and U.S. law: Freshfields Bruckhaus Deringer LLP 65 Fleet Street London EC4Y 1HS United Kingdom To the Company as to English and U.S. law: Clifford Chance LLP 10 Upper Bank Street London E14 5JJ United Kingdom To the Joint Lead Managers as to Russian law: Freshfields Bruckhaus Deringer LLP Kadashevskaya nab 14/2 119017 Moscow Russia To the Company as to Russian law: Clifford Chance CIS Limited ul. Gasheka, 6 125047 Moscow Russia

To the Issuer as to Irish law Arthur Cox Earlsfort Centre Earlsfort Terrace Dublin 2 Ireland

To the Company as to Russian tax law: DLA Piper Rus Limited 25, Leontievsky pereulok Moscow, 125009 Russia

To the Company as to certain matters of Russian law: EDAS Law Bureau 43/2 Lomonosovsky prospekt Moscow, 119192 Russia

To the Trustee as to English law Allen & Overy LLP One Bishops Square London E1 6AD United Kingdom

AUDITORS TO THE COMPANY Ernst & Young LLC Sadovnicheskaya Nab., 77, bld. 1 115035 Moscow Russia

LISTING AGENT Arthur Cox Listing Services Limited Earlsfort Centre Earlsfort Terrace Dublin 2 Ireland

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Merrill Corporation Ltd, London 12ZAX41501