The ‘A’ rating indicates that Yakutugol Holding Company qualifies as a highly reliable borrower. Risk of a delay in meeting liabilities is relatively low, restructuring risk for a loan / part of a loan is minimal.

We appreciate the higher assets, growing coal output, acceptable interest coverage ratio, favorable debt maturity profile, downward trend in the total liabilities to assets ratio and projected optimization of the management and financial scheme for the Elginskoye (Elga) coal deposit development as principal positive rating drivers for Yakutugol Holding Company.

In 2013, the Yakutugol Holding Company continued to increase assets, benefiting from its growth and business expansion. The Company’s assets grew by 28.1% in 2011, by 25.8% in 2012 and further improved by 27.1% in the first quarter of 2013 alone.

In January-June 2013, Yakutugol Holding Company ramped up coal production. The Company’s total output was 2,345 thousand tonnes in the first quarter, 2,598 thousand tonnes in the second quarter of 2013, exceeding the results achieved for the same periods in 2012.

Yakutugol Holding Company’s debt is fairly well structured in terms of maturity: The debts maturing in less than one year account for about 28% of the total debt obligations. The recently detected downward trend in the total liabilities to assets ratio has a further positive impact on the development of Yakutugol Holding Company.

The projected optimization of the management and financial scheme employed for the Elginskoye (Elga) coal deposit development is also expected to improve Yakutugol Holding Company’s financial position to a certain extent.

At the same time, the shrinking revenues, profits and return ratios, high and still growing debt burden, and weaker turnover ratios for capital and receivables are exerting pressure on the rating of Yakutugol Holding Company.

In the first quarter of 2013, Yakutugol Holding Company’s revenues dropped by 25% year-on-year in the wake of the depressed market prices; the Company closed the first quarter with a loss of RUB 554 million, with a heavy drop in profitability: return on equity (ROE) and return on invested capital (ROIC) dropped more than 5 times, EBIT margin-based return on sales almost 5 times, EBITDA margin-based return on sales more than 3-fold.

The Company is facing a heavy and growing debt burden. In the first quarter of 2013, Yakutugol Holding Company’s loan debt increased by 7.2% and reached almost 69.5 billion rubles, resulting in lower debt/revenue, equity to total assets, financial stability ratios.

Another negative rating driver is the weaker capital turnover ratio and receivables turnover ratio. In the first quarter of 2013, general capital turnover ratio of Yakutugol Holding Company decreased from 0.32 to 0.30, equity capital turnover ratio from 2.05 to 1.65, receivables turnover ratio from 2.29 to 1.69.

Yakutugol Holding Company established in 2003 on the basis of state unitary enterprise Yakutugol has been part of the Mechel-Mining holding since 2008. OJSC Mechel-Mining currently holds 100% of the shares in Yakutugol Holding Company. Today, being one of Russia’s largest coal mining companies, Yakutugol Holding Company is one of the few domestic producers of hard coking coals. The Company has all the necessary licenses for coal mining operations. If demand is sufficient, the Company’s total annual coal output reaches 11.5 million tonnes. Yakutugol Holding Company’s surface and underground mines account for about 80% of all the coal output in the Sakha Republic / Yakutia. The Company exports a large part of its clean coal. Yakutugol Holding Company operates four mining enterprises: the Neryungrinsky mine, the Kangalassky mine, the Dzhebariki Khaya underground mine and the Elga Coal Complex, the Neryungrinskaya Coal-Washing Plant, as well as auxiliary enterprises and facilities supporting the primary activity (motor depot for the company’s transport vehicles, loading and transportation department, repair office/shop, commercial department, etc.). As of April 1, 2013, OJSC Yakutugol Holding Company’s assets amounted to RUB 88.7 billion, equity capital totaled RUB 11.9 billion.

Full name: Open Joint Stock Yakutugol Holding Company.

Short name: Yakutugol Holding Company.

The auditor of OJSC Yakutugol Holding Company is CJSC ENERGY CONSULTING/Audit (state registration number 1047717034640), a member of nonprofit partnership Institute of Professional Auditors of Russia (IPAR), primary registration number 10202014620.

This press release is based on the statement of assigning a credit rating to Yakutugol Holding Company.

The credit rating, along with any information and conclusions provided in this press release, only conveys our opinion on the Company’s credit standing and shall not be considered as advice on the purchase and sale of securities or the provision of loan facilities.

AK&M Rating Agency will not incur any responsibility for any interpretations, inferences and consequences related to the application of results of the rating estimation procedure by any third parties.

AK&M Rating Agency is a leading independent national rating agency engaged in rating activities since 1993. AK&M Rating Agency is accredited by the Ministry of Finance of the Russian Federation (order no. 452 as of September 17, 2010).

AK&M Ratings are recognized by the Central Bank of Russia (for providing unsecured lending facilities – Regulation 323-P), Vnesheconombank (for granting subordinated loans) and SME Bank (for its program of lending to SME businesses), RUSNANO (when selecting banks to provide cash and settlement services to project and engineering companies implementing investment projects), the MICEX (for the Corporate Bond Index / MICEX CBI and Municipal Bond Index / MICEX MBI calculation and bond listing purposes). By a resolution of Russia’s Government AK&M Ratings count for the recapitalization of banks. Besides, AK&M Rating Agency is recognized by AHML and accredited by SRO National Securities Market Association.

CJSC Analysis, Consulting and Marketing Rating Agency
ul. Gubkina 3
Moscow, Russia
www.akmrating.ru
Press release by: A.G. Chumachenko
Phone no. (495) 916-70-30, fax no.: (499) 132-69-18