The downgrade decision was motivated by the actual failure to settle the tremendous debt of the holding's parent company Mechel OAO reaching 8 billion US dollars, the net debt to EBITDA multiple being more than 11x (as of April 1, 2014). The said failure is proven by the numerous legal actions brought by the group's principal lenders against the parent company and subsidiaries including OJSHC Yakutugol.

The adverse market conditions have aggravated the debt burden issue for Yakutugol whose debt exceeded RUB 60 billion as of July 1, 2014. The lower selling prices and the narrower demand for the company's products causes major losses cutting into its market capitalization and challenging its abilities to meet the debt obligations on the short-term horizon.

Besides, the effective debt settlement issue is still on the agenda and has fairly vague prospects of being ultimately solved, given that OJSHC Yakutugol is financially challenged.

That said, AK&M Rating Agency has reasons to expect the Company to improve its performance benefiting from the recent upward trend in the global demand for coal products. As estimated by Russia's Ministry of Energy, exports of coal from Russia for the 8-month period in 2014 increased by 12.4% against the same period in 2013. This increase offers certain opportunities to boost cash flows so as to repay some of the current debt and to strengthen the Company's financial profile.

OJSHC Yakutugol established in 2003 on the basis of state unitary enterprise Yakutugol has been part of the Mechel Mining holding since 2008. Mechel Mining OAO currently holds 100% of the shares in OJSHC Yakutugol. Today, OJSHC Yakutugol is one of Russia's leading coal mining companies and one of the few domestic hard coking coal producers. 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. OJSHC Yakutugol's surface and underground mines account for about 80% of all the coal output in Russia's Sakha Republic / Yakutia. The Company exports a large part of its clean coal. OJSHC Yakutugol 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.).

The rating, along with any information and conclusions provided in this press release, only conveys our opinion on the Company's creditworthiness and shall not be construed as a recommendation to purchase or sell securities, or to lend funds.
AK&M Rating Agency shall not be held liable for any interpretations, inferences and consequences related to the application of results of the rating estimation procedure by any third parties.

CJSC Analysis, Consulting and Marketing Rating Agency is a leading independent national rating agency engaged in rating activities since 1993. CJSC AK&M Rating Agency is accredited by the Ministry of Finance of the Russian Federation (order no. 452 as of September 17, 2010) and is on the Central Bank of Russia's Register of Accredited Rating Agencies.

CJSC AK&M Rating Agency

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www.akmrating.ru

Phone no. (495) 916-70-30, fax no.: (499) 132-69-18.