Talks with Foreign Investors on Udokan Fruitless, Project Needs State Support - Rostec CEO

Talks with foreign investors on Udokan fruitless, project needs state support - Rostec CEO

Negotiations with foreign investors on the sale of a stake ISSN 1072-2645 in the huge Udokan copper field have been fruitless, the May 29 – June 4, 2015 CEO of state corporation Rostec, Sergei Chemezov said in Vol. XXV, Issue 21 (1189) an interview with business daily Vedomosti. Rostec is a partner of the holder of the license to Udokan, billionaire Alisher Usmanov's Metalloinvest. "Initially we were CONTENTS counting on [state development bank] VEB, but they're having problems with cash. At this stage we're considering PRECIOUS METALS investors among foreigners.

NONFERROUS METALS

FERROUS METALS Sberbank to bankrupt Mechel if acceptable restructuring not FERROUS ORES proposed - Gref PIPE Sberbank will bankrupt Mechel if the coal and steel company does not put an acceptable restructuring proposal on GEMSTONES the table, Sberbank chief German Gref told minority shareholders in the sidelines of the bank's AGM this week. COAL "We'll bankrupt them if they don't redeem the debt or if they don't propose acceptable restructuring terms," he said, STATISTICS adding that the company's current restructuring proposals were unacceptable. "They are proposing installments over CURRENCY RATES ten years without interest payment. If they get money they might pay us something. ANALYTICAL REPORTS

Alrosa boosts EBITDA 65% to 43 bln rubles in Q1 Yakutia-based diamond monopoly Alrosa boosted consolidated EBITDA 65% in Q1 2015 year-on-year to 42.9 billion rubles, Alrosa said in its IFRS financials for the period. The EBITDA margin rose to 57% from 46% a year earlier. Net profit jumped 270% year-on-year to 22.2 billion rubles, compared with the consensus forecast of 24.37 billion rubles. "Q1 2015 results were mainly driven by a favorable FX market environment. Diamond market in Q1 2015 was less active compared with Q1 2014 due to a lower demand for rough diamonds from Indian cutters and polishers," Alrosa President Andrei Zharkov said.

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2 CONTENTS

PRECIOUS METALS 3 Start of gold mining at Noni postponed to early 2017 3

NONFERROUS METALS 4 Talks with foreign investors on Udokan fruitless, project needs state support - Rostec CEO 4 Court decides to prevent Firtash company from leasing Vilnohirsk plant - prosecutors 5

FERROUS METALS 6 MMK shareholders waive dividends for 2014 6 Metinvest cuts EBITDA by 61%, revenues - by 38% in Q1, 2015 - unaudited data 6 Evraz slightly increases stake in Petrovsky steel works 6

FERROUS ORES 8 Metalloinvest forecasts iron ore prices to rise to $60-$70 per tonne in medium term 8 Ferrexpo downgraded to 'CCC' - S&P 8

PIPE 10 Gazprom buying 31 bln rubles worth of R&M pipes, raises price a third 10 UMC to supply Macedonia with 5,000 tonnes of pipes 10 Centravis plans to boost pipe supplies to Middle East 11

GEMSTONES 12 Alrosa boosts EBITDA 65% to 43 bln rubles in Q1 12 Oppenheimer funds sold portion of Alrosa shares in Q1 14

COAL 15 Sberbank to bankrupt Mechel if acceptable restructuring not proposed - Gref 15 DPR refuses to pay delayed miners' wages, to dismiss 4,000 workers 17 Donetsk rescuers lift over 300 miners to surface of one of coal mines cut off from power 17 DTEK plans to reach agreement to postpone debt payment with creditors in Oct 18

STATISTICS 19 Russian international reserves down $4 bln in week 19 Russia produces 63.2 tonnes of gold in 4M - MinFin 20 Russia aluminum exports up 26%, nickel 11%, copper 140% in 4M - customs 20 Russia cuts ferrous metal exports 23% in 4M 21 Coal production in 4M up 6%, metal ores - 2% - Econ Ministry 22

CURRENCY RATES 23 Official exchange rates for CIS and Baltic nations as of 04.06.2015 23

ANALYTICAL REPORTS 24 In-depth analysis on Russian markets and industries 24

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3 PRECIOUS METALS

Start of gold mining at Noni postponed to early 2017 MOSCOW. May 29 (Interfax) - Gold mining at the Noni deposit in Khabarovsk Territory is expected to start in the first half of 2017, Golden League Group, which owns this project, reported. Previously, mining was expected to start in 2015 and was then pushed back to 2016. Zolotoproyekt, a gold mine design institute, has completed design work. There are plans to build a mine with capacity of 160,000 tonnes of ore at the Noni deposit in 2015-2016. It was reported earlier that production at Noni will total up to 20,000 ounces of gold annually. Noni has proven and inferred reserves (C1+C2 according to the Russian classification) of 227,000 ounces, and resources (P1+P2) of more than 600,000 ounces. The development of the Noni deposit has been included in the list of investment projects planned in Khabarovsk Territory under the region's social and economic development strategy to 2025. Golden League Group's main assets are located in Khabarovsk Territory and include two hard rock gold deposits, Noni and Bolotistoye.

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4 NONFERROUS METALS

Talks with foreign investors on Udokan fruitless, project needs state support - Rostec CEO MOSCOW. June 1 (Interfax) - Negotiations with foreign investors on the sale of a stake in the huge Udokan copper field have been fruitless, the CEO of state corporation Rostec, Sergei Chemezov said in an interview with business daily Vedomosti. Rostec is a partner of the holder of the license to Udokan, billionaire Alisher Usmanov's Metalloinvest. "Initially we were counting on [state development bank] VEB, but they're having problems with cash. At this stage we're considering investors among foreigners. We've held negotiations with Arabian and Chinese funds. But so far concrete decisions have not been made," Chemezov said. No agreements have been reached with Chinese investment fund Hopu, which planned to acquire 10% of Udokan until the end of last year. "We're discussing for now. We haven't reached any decision at this point," Chemezov said. Metalloinvest signed a strategic cooperation agreement with Hopu a year ago during the Rus- sian president's visit to China. "We're holding negotiations with Chinese partners, who are prepared to jointly invest in the development of a feasibility study," Chemezov said. Rostec was also supposed to acquire a stake in the project, but this has not happened yet. "There is no timetable yet," Chemezov said when asked about the deal with Metalloinvest. He said the project needs state support to move forward. "The issue of a loan and infrastructure - a railway and power - has still not been resolved. These issues should be assumed by the state, not the investor…The project, essentially, is a greenfield and requires a comprehensive ap- proach involving measures of state support. Without the help and close attention of the state, the implementation of projects of this scale is not possible. Considering the considerable fiscal and social impact of the project for the region and the country, state support seems very appropriate," Chemezov said. He said the possibility of building a copper smelter that could take raw material from Udokan and Erdenet, a copper deposit in Mongolia being developed by a Rostec division, is being considered "since building a metallurgical production facility at Udokan itself is too expensive." "We're continuing work: we've conducted geological exploration, trial smelting - everything's alright with quality. Now we're deciding the issue with infrastructure," Chemezov said. Rostec is continuing work to bring investors into the group's holding companies, Chemezov said earlier in the week. "We are continuing work to bring in investors, private sector and foreign investors included," Chemezov said. "Today it is my belief that we do not need placements on one or another exchange; the money can be raised from strategic partners," he said. Half of the Rostec's holding companies are ready to sell share stakes to such partners, he said. "We are in talks with foreign partners among others, various funds," he said.

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In February, Chemezov had said Rostec's biggest holdings were ready to conduct IPOs, but that would not be possible any time soon due to the economic situation. "Such holding companies as VSMPO-Avisma, Russian Helicopters, Shvabe, KRET (Concern Radioelectronic Technologies) are ready to hold IPOs, but the current economic situation is not conducive to that," he said at the time. Chemezov also said at the time that the companies that do not hold IPOs would find investors ready to take major stakes.

Court decides to prevent Firtash company from leasing Vilnohirsk plant - prosecutors KYIV. June 3 (Interfax) - The higher business court of Ukraine has decided against allowing Ukrainian Chemical Products, part of Dmytro Firtash's Group DF, to resume leasing Vilnohirsk state mining and metallurgical plant, the Public Prosecutor's Office of Ukraine said in a press release on Tuesday. "Public Prosecutor's Office protected ownership rights of the state to Vilnohirsk mining plant in the higher business court of Ukraine. Public Prosecutor's Office prevented the illegal leasing of property of Vilnohirsk state mining and metallurgical plant worth over UAH 430 million to private joint-stock company Ukrainian Chemical Products, which is affiliated with Firtash in me- dia reports," the press service reported, referring to Deputy Public Prosecutor Vitaliy Kasko. According to the press release, in 2004, the State Property Fund of Ukraine leased Vilnohirsk plant to Ukrainian Chemical Products (earlier CJSC Crimea Titan). After the agreement expired, the fund informed the company that the fund did not plan to prolong the agreement, as the state wanted to use it for itself. Ukrainian Chemical Products tried to oblige the fund to lease the property for a new term and filed a claim to court. The courts of first and second instances did not satisfy the claim. Ukrainian Chemical Products subsequently filed the claim to the higher business court of Ukraine.

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6 FERROUS METALS

MMK shareholders waive dividends for 2014 CHELYABINSK. May 29 (Interfax) - The shareholders of Magnitogorsk Iron & Steel Works (MMK) voted at their annual general meeting on May 29 to waive dividends for 2014, the Rus- sian steelmaker said in a statement. MMK did not pay dividends for 2013 or for 2012 either. The new board of directors elected at the AGM includes two new members: Ralf Tavakolian Morgan, Partner of Baring Vostok Capital Partners, and Sergey Sulimov, Deputy CEO for Fi- nance and Economy at MMK. PricewaterhouseCoopers Audit was confirmed as external auditor.

Metinvest cuts EBITDA by 61%, revenues - by 38% in Q1, 2015 - unaudited data KYIV. June 4 (Interfax) - Metinvest B.V. (the Netherlands), the parent company of Metinvest international vertically integrated mining and steel group, in January-March 2015 saw EBITDA worth $341 billion, which is 61% down compared to the same period in 2014 ($878 million). According to the company's unaudited consolidated financial statements in line with IFRS, which were posted on the Irish Stock Exchange, in the first quarter of 2015 its consolidated EBITDA dropped due to the decrease in the mining division's EBITDA by $668 million, to $106 million, which was partially offset by the increase of $116 million in the steel division's EBITDA, to $253 million.

Evraz slightly increases stake in Petrovsky steel works KYIV. May 29 (Interfax) - Palmrose B.V. (the Netherlands), a 100% subsidiary of Evraz Group (Russia), has increased its stake in PJSC Evraz-Petrovsky Dnipropetrovsk Steel Works to 96.3014% from 96.2339%. The company announced this in the information disclosure system of the National Commission on Securities and the Stock Market, with reference to information it received on May 28, 2015 from PJSC National Depository of Ukraine, which was composed according to the register of shareholders as of May 21 this year. According to the report, the number of shares in PJSC Evraz-Petrovsky Dnipropetrovsk Steel Works owned by Palmrose B.V. increased by 1,551,721 pieces, to 2,214,906,991 pieces from 2,213,355,270 pieces. Evraz-Petrovsky Dnipropetrovsk Steel Works in 2014 increased its net income by 25.2% in comparison with 2013, to UAH 5.983 billion, net loss - by 6.6 times, to UAH 2.626 billion. At the end of the year its outstanding loss reached UAH 4.872 billion.

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In 2014, the plant raised production of finished steel by 0.7% in comparison with 2013, to 840,000 tonnes, reduced steel production by 0.8%, to 986,000 tonnes, and increased cast iron output by 2.2%, to 1.001 million tonnes. The company intends in 2015 to produce 944,100 tonnes of rolled steel, 1.077 million tonnes of steel, and 1.029 million tonnes of cast iron.

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8 FERROUS ORES

Metalloinvest forecasts iron ore prices to rise to $60-$70 per tonne in medium term MOSCOW. May 28 (Interfax) - The Metalloinvest Group forecasts the price of iron ore raw ma- terials to increase in the medium term. "In the medium-term outlook, it will be those prices existing today, with an upward trend in the range +10%-12%, that is, the range $60-$70 per tonne," Metalloinvest CEO Andrei Varichev told journalists. The existing price of iron ore is out of balance, but it is difficult to say to what extent. "To look at the beginning of 2014 and at the beginning of this year, and the minimum that oc- curred in the first half and compare this to the crisis in 2009, then we together will be horrified to see that we are coping with a decline comparable to the crisis in 2009," Varichev said. The steep decline is most likely the result of two factors: speculation and the reorientation of China's economy. "Metallurgical enterprises are in operation throughout the world, implementing infrastructure projects in one way or another. No one put restrictions on consumer loans, prohibited demand for cars. Why did this decline occur? Probably there is an element of speculation for one. Sec- ondly is, in one way or another, access to one of the major markets, China, which paces the global market, where growth of the Chinese economy has moderated and the emphasis has shifted from industrial growth to development of services," he said. Metalloinvest's price forecasts are $309 per tonne for HBI by 2023 (compared with $352 in 2014), $68 per tonne for iron ore ($97) and $440 per tonne for steel ($482).

Ferrexpo downgraded to 'CCC' - S&P KYIV. June 2 (Interfax) - Standard & Poor's Ratings Services has lowered its long-term corporate credit rating on Ukrainian iron ore producer Ferrexpo PLC to 'CCC' from 'CCC+', reads a posting on the rating agency's website. "We placed the rating on CreditWatch with negative implications. We also lowered the long- term issue rating on Ferrexpo's senior unsecured notes due 2019 to 'CCC' from 'CCC+', and placed the rating on CreditWatch with negative implications," reads the report. "The downgrade reflects our view of Ferrexpo's liquidity position as tight, owing to low iron ore prices, the near maturity of its $286 million eurobond notes in April 2016, and meaningful bank debt amortization (notwithstanding its sizable offshore cash balances of over $300 million). Un- der our conservative working price assumption for iron ore of $45 per tonne for the rest of 2015 and 2016, we now forecast less free cash flow than at the start of the year and tightening liquidity in the next 12 months and beyond. Any buffer for the company's liquidity position further re- lies on continued access to the available pre-export financing (PXF) facility (about $150 million), and also to access to $160 million cash held in Ukraine, which we don't factor into our liquidity calculation as we consider it not immediately available for debt repayment. Therefore we now assess the company's liquidity as 'weak'," according to the document.

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"The CreditWatch placement follows Ferrexpo's recent proposal to exchange its outstanding $286 million eurobond notes due April 2016 with new notes due April 2018 and April 2019. We consider this exchange offer to be distressed given our liquidity assessment, the company's credit standing in the market, and the possibility that minority noteholders could be forced into ex- changing their notes," S&P said. "To consider an exchange offer as tantamount to default, we look for two conditions to be met: the offer, in our view, implies the investor will receive less value than the promise of the original securities; and the offer, in our view, is distressed, rather than purely opportunistic. Ferrexpo launched a similar exchange offer in February this year. However, we considered it to be a vol- untary proposal rather than distressed. This was because we viewed Ferrexpo's liquidity as man- ageable at that time and we took into account our then-prevailing iron ore price forecast, which has since declined materially," the rating agency stated. "On completion of an exchange we view as distressed, we lower our ratings on the affected issues to 'D' (default) and the issuer credit rating to 'SD' (selective default), assuming the issuer continues to honor its other obligations. This is the case even though the investors, technically, may accept the offer voluntarily and no legal default occurs. Post the completion of the exchange offer, we would raise the rating on Ferrexpo, taking into account the improved liquidity and more comfortable debt maturity," reads the report. "If Ferrexpo decides not to pursue this exchange offer or initiate further discussions with the noteholders, we would likely affirm the 'CCC' rating, with a negative outlook, pointing to the heightened risk of default on the April 2016 bond. Ultimately, the company's debt repayment capacity will depend on its free cash flow generation and thus on iron ore prices remaining well above the levels we saw in the first quarter of the year. At the same time, management will have to balance the repayment of notes with the access and debt amortization under its PXF facilities. The CreditWatch placement reflects the possibility that we could lower the rating to 'SD' if the company completes the proposed exchange offer. Post the completion of the exchange offer, we would raise the rating on Ferrexpo, taking into account the improved liquidity and more comfortable debt maturity. Cancelation of the offer would likely lead us to affirm the current ratings. We will resolve the CreditWatch placement over the next several weeks," it summarized.

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10 PIPE

Gazprom buying 31 bln rubles worth of R&M pipes, raises price a third MOSCOW. June 1 (Interfax) - Just days after a conference of Russian pipe makers, hosted by the Volzhsky Pipe Works, Gazprom has called a new tender for repair and maintenance pipes, raising its price 33%. Gazprom Komplektatsiya, the Russian gas giant's procurement arm, has called a new tender for the procurement of R&M pipes for trunk pipelines worth 31.4 billion rubles (including VAT). The procurement of a total of 358,000 tonnes of large-diameter pipes is split into 17 lots averag- ing at 2 billion rubles each, with delivery in H2 2015 and H1 2016. Last year, when tenders were held in July and October, the price per tonne of pipes (1,420 mm diameter, 18.7 mm wall thickness, anti-corrosive, insulation, end caps, VAT) was 67,159 rubles. A tender at which Gazprom intended to offer 77,974 rubles per tonne was called in April this year but then canceled. The company is offering 89,144 rubles a tonne at the latest tender. Gazprom in 2015 may double the purchase of pipes to 1.7 million-2 million tonnes, the chair- man of the coordinating board of the Pipe Producers Association, Ivan Shabalov, said at the Metallurgical Summit in Moscow. Gazprom's demand for large diameter pipe (813-1,420 mm) until 2020 might be 2 million tonnes a year and overall large diameter pipe demand to 2020 is estimated at 11 million tonnes. The Russian pipe industry is currently supplying 100% of the large diameter pipe demand from Gazprom and Transneft. "At present, Russia producers may supply their products to all the gas pipeline construction projects that have been announced. Russian plants are able to produce up to 2.9 million tonnes of 1,420 mm single-joint longitudinal pipe," he said. Imported pipe accounted for 0.56% of Gazprom purchasing in 2014. That figure had fallen to 0.1% in April 2015.

UMC to supply Macedonia with 5,000 tonnes of pipes MOSCOW. June 4 (Interfax) - Vyksunsky Metallurgical Plant, which is based in the Nizhny Novgorod region and is part of United Metallurgical Company, will supply pipes for the gasifi- cation of Macedonia. United Metallurgical Company said in a statement that the products, in particular, those marked for the construction of the Klechovtse-Valve Station No. 5 section of the Klechovtse-Kavadartse pipeline. In total, it is expected to supply 5,000 tonnes of pipes. Pipes for the project with a diameter of 508 mm and wall thickness of 6.4 mm with a three-layer outer polyethylene coating to DIN 30670 standards will be produced at the modernized 203-530 pipe mill of the third pipe workshop of Vyksunsky Metallurgical Plant.

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"Participation in the project was possible thanks to the modernization of the main technological equipment of the third pipe workshop of Vyksunsky Metallurgical Plant in 2012-2014. The modern production complex of the workshop is facilitating the production of a new line of pipes for us, the final finishing of products and carrying out effective quality control in accordance with the high requirements of international clients," Vyksunsky Metallurgical Plant Managing Director Sergei Filippov was cited as saying in the statement.

Centravis plans to boost pipe supplies to Middle East KYIV. June 3 (Interfax) -Centravis Production Ukraine, the world's leading supplier of high- quality seamless stainless piping solutions and part of Centravis Ltd., has successfully obtained qualification by ADCO (the Abu Dhabi Company for Onshore Petroleum Operations Ltd.) and ZADCO (Zakum Development Company), the key oil producers in UAE, and plans to boost pipe supplies to the Middle East, particularly, UAE. According to a company press release, ADCO and ZADCO, and one more company - ADMA OPCO (The Abu Dhabi Marine Operating Company), which specializes in offshore oil and gas production, have confirmed conditional qualification for instrumentation tubing. All three companies are the part of ADNOC Group (the Abu Dhabi National Oil Company). "Passing the certification process means that Centravis was approved as products supplier for projects of these companies. Partnership with ADNOC is going to help Centravis to increase its market share in UAE and Middle East in general," reads the press release. All three companies have very strict quality requirements. Especially ZADCO, which is an offshore company operating in extremely difficult environment with very high H2S gas content in the fluids. Still Centravis product range includes special stainless steel types, which are rich in nickel and molybdenum. This allows showing good results even in harsh environment, the press service said. "Working with ADNOC is the next step for us. We have won popularity among the clients in CIS countries, EU, North America. Obtaining ADCO and ZADCO qualification continues Cen- travis consistent development in oil and gas segments. We are sure that qualification by the leading companies along with high quality and innovative solutions opens new prospects for Centravis," the press service said, citing Centravis Sales Viacheslav Erkes.

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12 GEMSTONES

Alrosa boosts EBITDA 65% to 43 bln rubles in Q1 MOSCOW. June 4 (Interfax) - Yakutia-based diamond monopoly Alrosa boosted consolidated EBITDA 65% in Q1 2015 year-on-year to 42.9 billion rubles, Alrosa said in its IFRS financials for the period. Analysts at seven investment banks told Interfax in a consensus forecast that EBITDA for the quarter would equal 43.42 billion rubles. The EBITDA margin rose to 57% from 46% a year earlier. Consolidated revenue was up 31% to 74.6 billion rubles. The consensus forecast for revenue was 75.165 billion rubles. Net profit jumped 270% year-on-year to 22.2 billion rubles, compared with the consensus forecast of 24.37 billion rubles. Net cash flow in Q1 2015 totaled 31.8 billion rubles, up 58% compared with the same period last year. "Q1 2015 results were mainly driven by a favorable FX market environment. Diamond market in Q1 2015 was less active compared with Q1 2014 due to a lower demand for rough diamonds from Indian cutters and polishers," Alrosa President Andrei Zharkov is quoted in the press release as saying. "The fundamental factors remain positive in terms of demand for diamond jew- elry," Zharkov said.

IFRS financial highlights for Alrosa in Q1 2015 (mln rubles): Q1 2015 Q4 2014 Q1 2014 Q1 2015/ Q1 2015/ Q4 2014 Q1 2014 Diamonds produced, mln ct 8.4 10.6 7.9 (21%) 6% Diamonds sold, mln ct 9 10.8 12.7 (17%) (29%) Sales revenue 74 580 60 252 56 850 24% 31% Incl. revenue from sale of gem- quality diamonds 65 729 50 518 48 696 30% 35% Average sale price of gem- quality diamonds, $/ct 161 161 155 = 4% Cost of production 27 961 27 004 27 906 4% = EBITDA 42 863 28 016 26 022 53% 65% EBITDA margin 57% 46% 46% - - Profit (loss) in period 22 231 (29 616) 5 983 - 270% Net profit margin 30% - 11% - - Cash and equivalents 54 221 21 693 16 143 150% 240% Total debt 203 327 197 160 136 931 3% 48% Net debt 149 106 175 467 120 788 (15%) 23% Net debt/EBITDA 1.3x 1.9x 1.5x - - Net cash flow 31 754 19 482 20 087 63% 58% Capex 7 054 8 338 (15.4%)

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The revenue increase was mainly due to 34% growth in the diamond segment. Revenue from sale of gas was down 8%.Revenue from sale of gem-quality diamonds rose 4% year-on-year, due to the ruble devaluation (whose effect is estimated at 28.27 billion rubles) and the higher average sale price owing to changes in the assortment (1.5 billion rubles). Gross profit from sale of diamonds increased by 18.6 billion rubles. Net profit increased owing to the higher EBITDA and the decline in the exchange rate loss by 3.48 billion rubles. Capex declined 15% in Q1 2015, mainly due to reductions in investment to expand production capacity (the difference on an annual basis is estimated at 1.7 billion rubles. The increase in costs was mainly the result of a 34% increase in payroll expenses to 10.6 billion rubles, stemming from cost of living adjustments and changes in accounting for compensation reserves.

Debt Net debt totaled $2.55 billion as of March 31, 2015, down from $3.119 billion at the beginning of the year. Alrosa has ruble obligations totaling $343 million (at 58.46 rubles/$1) coming due in 2015. Alrosa plans to pre-pay $1 billion in debt this autumn, a banking sector source told Interfax. "Alrosa will pre-pay loans in the autumn, after it has built up revenue," the source said. In order to pay off forex loans, the company is amassing the necessary sum in forex, the source said. Alrosa's biggest creditors are Alfa-Bank, due 62.6 billion at the end of Q1 2015; VTB, due 35.75 billion rubles; and UniCredit Bank, due 21.63 billion rubles. Alrosa's net debt at the beginning of 2015 was $3.119 billion. This might have fallen to $2.6 billion by the end of March, corresponding to net debt/EBITDA 1.1x, Sberbank CIB said in a report. Alrosa is due to pay $1.525 billion in loans in total in 2016-2017. It has delayed a $600-million payment to VTB until 2018. Alrosa has scheduled payments of 20 billion rubles on ruble-denominated bonds in June- October this year. After that, 100% of its debt will be dollar-denominated.

Prices Alrosa does not expect diamond prices to decline substantially in the second half of 2015, Al- rosa Vice President and CFO Igor Kulichik said during a conference call on the IFRS financials for the Q1 2015. "We feel that based on the interactions with our clients, the fluctuations that took place in the market in the first and second quarters have ended. We do not expect further significant declines in diamond prices this year. At present the market is in a state of equilibrium," he said. Weakening demand on the part of Indian clients had a significant impact on the state of the market, he said. In the first half this year, Alrosa lowered prices at its monthly trading sessions twice, by 3%. The reductions were made in the course of consultations with Alrosa clients and market partici- pants, Kulichik said.

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14 Oppenheimer funds sold portion of Alrosa shares in Q1 MOSCOW. June 2 (Interfax) - The Oppenheimer family of funds reduced their holdings in Ya- kutia-based diamond monopoly Alrosa in the first quarter of 2015, Oppenheimer said in its financial reporting. The number of shares held by Oppenheimer Global Fund declined to 24.240 million as of March 31, 2015, down from 29.732 million shares as of the end of 2014. The market value of the Alrosa shares in the portfolio at the end of March was $30 million. Oppenheimer Variable Account Funds reduced its Alrosa holdings to 6.425 million shares, from 8.202 shares worth about $8 million as of March 31. Oppenheimer Gold & Special Minerals Fund's Alrosa holdings were unchanged at 4.6 million shares worth $5.7 million. One of the biggest funds in the family, Oppenheimer Developing Markets Fund, which held 196.425 million Alrosa shares worth $218.3 million as of February 27 will not publish its report until July. The Oppenheimer funds acquired a major stake in Alrosa during the diamond monopoly's IPO in the fall of 2013. Meanwhile, Lazard Emerging Markets Equity Portfolio, which is under the management of Lazard Asset Management, in Q1 2015 substantially reduced its positions in the shares of Al- rosa, the fund said in a report. The fund reduced its position in the shares of Alrosa from 102,425,000 shares to 82,275,000 shares with a market value of around $100 million as at March 31, 2015.

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15 COAL

Sberbank to bankrupt Mechel if acceptable restructuring not proposed - Gref MOSCOW. June 4 (Interfax) - Sberbank will bankrupt Mechel if the coal and steel company does not put an acceptable restructuring proposal on the table, Sberbank chief German Gref told minority shareholders in the sidelines of the bank's AGM. "We'll bankrupt them if they don't redeem the debt or if they don't propose acceptable restructuring terms," he said, adding that the company's current restructuring proposals were unacceptable. "They are proposing installments over ten years without interest payment. If they get money they might pay us something. If it [Mechel] is prepared for acceptable restructuring terms for the bank, then fine, we'll do a restructuring for all," he said. Concrete talks with Gazprombank on the sale of Mechel's debt are not being held, Sberbank First Deputy CEO Maxim Poletayev told journalists on May 29. "For us the effectiveness of the deal is important. For us it is important to receive money in re- turn. Therefore, who first pays us, is the one with whom we will make an agreement. Therefore, in general, here the proposal is open for all. If Gazprombank is interested, we are also ready to speak with it, but no concrete talks with it are being held at present," Poletayev said. "As everybody has written in the press, a decision [on restructuring Mechel's debts] is due to be worked out by the end of June, at least that's the general idea. We're in the process," said Maxim Degtarev, head of Sberbank's department for work with distressed assets. Sberbank will continue to file lawsuits over the bankruptcies of Mechel subsidiaries, Sberbank of Russia First Deputy CEO Maxim Poletaev told Interfax. "The bank offered Mechel acceptable principles for restructuring, but did not receive a response. In the absence of constructive proposals on the part of Mechel and its beneficiary, and the sys- tematic overdue payment of debt, the bank will use legal means to defend its rights and inter- ests," he said. "Sberbank Leasing filing for bankruptcy declarations at Korshunovsky GOK, Yakutugol and Metallurgshakhtspetsstroy follows from the bank's position. If new grounds arise, the bank will continue filing the appropriate declarations in court," Poletaev said.

Owner's responsibilities Igor Zyuin, the owner of Mechel, must and will bear responsibility for the ineffective management that has reduced the company to the state it is in now, and Sberbank will ensure this hap- pens, Gref told reporters. "We'll go right to the end of this path, we won't allow the bank to suffer losses at a time when ineffective owners are sitting on their shares and not suffering at all, we can't have that. Not one company would be allowed the sort of terms that Mechel is putting before us, offering us. The company itself and the people who work for it shouldn't have to feel any particular perturba-

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16 tions, but the owner who has reduced the company to such a state must bear responsibility, and will bear it," Gref said. "Maybe the esteemed owner, in inverted commas, might turn and face his own company, his own problems, and start to answer for his own deeds. I have nothing but negative feelings for owners like that," Gref said. "We'll go right to the end of this path, we won't allow the bank to suffer losses at a time when ineffective owners are sitting on their shares and not suffering at all, we can't have that. Not one company would be allowed the sort of terms that Mechel is putting before us, offering us. The company itself and the people who work for it shouldn't have to feel any particular perturba- tions, but the owner who has reduced the company to such a state must bear responsibility, and will bear it," Gref said. "Maybe he esteemed owner, in inverted commas, might turn and face his own company, his own problems, and start to answer for his own deeds. I have nothing but negative feelings for owners like that," Gref said.

VTB court order The Ninth Arbitration Appeals Court on June 1 rejected an appeal by the Mechel coal and steel group against an order to pay the VTB bank approximately 3 billion rubles, an Interfax corre- spondent reports from the court. A lawyer for Mechel said he was not certain the company would challenge the decision further. Mechel had said in court earlier that its subsidiaries paid 2.87 billion rubles to VTB in the framework of this case. Prior to this, the court had also rejected an appeal by Mechel to defer the case. The parties were unable to reach a settlement out of court. The court had delayed its consideration of an appeal by subsidiaries of Mechel on April 30 in the expectation an out-of-court-settlement would be reached. A court of first judgment original- ly ordered Mechel to pay just under 3 billion rubles on December 5. Agreements to restructuring of Mechel's debt to Russian banks will be reached in a month, VTB chief Andrei Kostin said at the end of May. "By the end of June, I think, we will reach a new agreement with Mechel on debt restructuring," he said. At the beginning of March, VTB informed Mechel's other creditors via the press that it would be taking the company to court over its debts. Russian and international courts are looking at several claims filed by VTB against Mechel and its subsidiaries. Mechel has been holding debt restructuring negotiations since the start of 2014. According to the latest figures, Mechel's debt totals $7.015 billion and 69% or $4.84 billion of this is owed to state banks VTB, Gazprombank and Sberbank. Gazprombank is seen as the most accommodat- ing creditor to Mechel and Zyuzin, while Sberbank is seen as the toughest negotiator.

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17 DPR refuses to pay delayed miners' wages, to dismiss 4,000 workers KYIV. June 3 (Interfax) - Leaders of the so-called Donetsk People's Republic have announced they are too short of funds to pay delayed wages to coalminers of state-run Donbassantracite enterprise in the town of Krasny Luch in Luhansk region, which was occupied by Russian-backed militants a year ago. "The enterprise was the employer of 4,000 men, but from now on all of them will be dismissed," presidential administration spokesman for Anti-Terrorist Operation issues Oleksandr Motuzian- yk said at a briefing in Kyiv on May 31. "This has once again confirmed that the militants are unable to do anything but steal and loot in occupied territories," Motuzianyk said. Meanwhile, the DPR Emergency Ministry has started pulling mine workers from the Skochinsky coal mine damaged by artillery shelling. "About an hour ago we started lifting coal miners from the Skochinsky coal mine which has lost electricity. At this point the effort continues. Over 300 miners have already been lifted to the surface," sources at the DPR emergency ministry told Interfax. "During the shelling there were 328 miners underground. Efforts to lift the miners on a winch continue," the emergency official told Interfax. Earlier DPR Deputy Defense Minister Eduard Basurin said that two coal mines in Donestk had lost power, Abakumov and Skochinsky, leaving 379 people trapped underground.

Donetsk rescuers lift over 300 miners to surface of one of coal mines cut off from power DONETSK. June 3 (Interfax) - The emergency ministry of the self-proclaimed Donetsk People's Republic (DPR) has started pulling mine workers from the Skochinsky coal mine damaged by artillery shelling. "About an hour ago we started lifting coal miners from the Skochinsky coal mine which has lost electricity. At this point the effort continues. Over 300 miners have already been lifted to the surface," sources at the DPR emergency ministry told Interfax. "During the shelling there were 328 miners underground. Efforts to lift the miners on a winch continue," the emergency official told Interfax. Earlier DPR deputy defense minister Eduard Basurin said that two coal mines in Donestk had lost power, Abakumov and Skochinsky, leaving 379 people trapped underground.

Russia & CIS Metals and Mining Weekly, May 29 – June 4, 2015 17 www.interfax.com

18 DTEK plans to reach agreement to postpone debt payment with creditors in Oct BERLIN. June 3 (Interfax) - The largest Ukrainian private energy holding DTEK plans to sign an agreement with banks in October to postpone the payment of a major part of $3 billion of its credit portfolio, DTEK CEO Maksym Tymchenko told reporters on the sidelines of the EURELECTRIC's conference in Berlin. "This is a forced measure due to consequences of crisis in Ukraine," he said. Tymchenko said that he has no doubt that DTEK will resist the challenge. Commenting on the operation of the company, he said that due to the situation in the country DTEK faces large difficulties with supplies of anthracite. The company would have to import coal from Russia, although this is not favorable for Ukraine's energy independence. He said that DTEK is holding talks on supplies of coal from territories that are not under control of the Ukrainian government. He said that in next two or three months coal supplies would double, to 600,000 tonnes a month. He said that private investors should come to the Ukrainian energy market to end the crisis thanks to the implementation of three core conditions: liberalization with the introduction of the Third Energy Package, stoppage of cross subsidizing, and the availability of a politically inde- pendent regulator.

Russia & CIS Metals and Mining Weekly, May 29 – June 4, 2015 18 www.interfax.com

19 STATISTICS

Russian international reserves down $4 bln in week MOSCOW. June 4 (Interfax) - Russia's international reserves fell $4 billion to $356.5 billion in the week to May 29, the Central Bank said on Thursday. The reserves stood at $360.5 billion on May 22. They consist of highly liquid financial assets at the disposal of the CB and Russian government, including foreign currency, monetary gold, special drawing rights, the reserve position at the IMF and other reserve assets. The Central Bank will gradually replenish its gold and forex reserves over several years, Central Bank Governor Elvira Nabiullina told journalists. "We will not set deadlines for ourselves. This will be done gradually, stretched in time, over several years at least. The operations will be carried out depending on the situation on the market," she said. The parameters of operations may be changed, Nabiullina said. "In principle many countries are now acting under conditions of heightened uncertainty, this is a worldwide phenomenon. And, in my view, it is perfectly sensible to have a sufficiently serious buffer against possible shocks coming from foreign markets. The gold and forex reserves are this buffer. And in our view, if the situation allows it, it would be sensible to accumulate gold and forex reserves. This does not mean that we are expecting the development of some kind of negative scenario, but as the Central Bank we should have a serious buffer amid heightened uncertainty on foreign markets," she said. Nabiullina explained how the Central Bank will determine the amount of forex purchases on the market for the replenishment of reserves. "Amounts of $100 million-$200 million were determined, based on the fact that the amount of operations should not significantly impact the progress of trading on the forex market. This is not about the fact that we want to influence the exchange rate, the opposite. How they will change will depend on the situation on the forex market, mostly on volatility," she said. These operations will not directly affect capital outflow, Nabiullina said. She said one should not mix up the two types of interventions, which the Central bank conducts. The first type of the regulator's participation on the forex market is connected with the accumu- lation of gold and forex reserves. The second type is interventions conducted in case of a threat to financial stability.

Russia & CIS Metals and Mining Weekly, May 29 – June 4, 2015 19 www.interfax.com

20 Russia produces 63.2 tonnes of gold in 4M - MinFin MOSCOW. June 2 (Interfax) - Gold production in Russia amounted to 63.2 tonnes in January- April 2015, the Finance Ministry said, quoting data about supplies to Russian gold refineries. Production of mined gold amounted to 47.6 tonnes, by-product gold - 5.4 tonnes and secondary gold - 10.2 tonnes. The Finance Ministry did not disclose monthly gold production data in 2014, so there are no figures for comparison. The Finance Ministry said Russia produced 300.6 tonnes of silver in January-April, including 159 tonnes of mined silver, 84.7 tonnes of byproduct and 56.9 tonnes of secondary silver.

Russia aluminum exports up 26%, nickel 11%, copper 140% in 4M - customs MOSCOW. June 4 (Interfax) - Russian aluminum exports grew 26% year-on-year in January- April 2015 to 1.203 million tonnes, the Federal Customs Service (FCS) said. The exports rose 38% in value to nearly $2.52 billion. Aluminum exports to non-CIS countries reached 1.184 million tonnes (+27%) in tonnage and $2.48 billion (+39%) in value terms. Nickel exports rose 11% year-on-year to 70,700 tonnes. Copper exports rose 140% to 166,700 tonnes. In value terms, they doubled to $982 million.

Russian aluminum, copper and nickel exports and imports in 4M 2015: Overall exports To non-CIS countries To CIS countries '000 tonnes $ mln '000 tonnes $ mln '000 tonnes $ mln Export Unprocessed aluminum 1 203,4 2 524 1 184,5 2 481,3 18,9 42,7 Change from Jan-April 2014 26% 38% 27% 39% (18%) (7%) Unprocessed nickel 70,7 968,6 70,6 967,5 0,0 1,1 Change from Jan-April 2014 10,8% 7,1% 11% 7,4% - (69%)_ Refined copper 166,7 981,6 165,3 975,5 1,5 6,1 Change from Jan-April 2014 140% 106% 144,5% 109% (21%) (36,5%) Import Aluminum ores and concentrates 40,1 6,5 39,4 6,4 0,7 0,2 Change from Jan-April 2014 154% 32,65% 170% 39% (36%) -

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21 Russia cuts ferrous metal exports 23% in 4M MOSCOW. June 4 (Interfax) - Russian ferrous metal exports in tonnage fell 23.2% year-on-year in January-April 2015 and exports in value fell 38.2%, the Federal Customs Service (FCS) said. Exports to non-CIS countries fell 24.2% in tonnage and 39.9% in value, and exports to the CIS fell 16.9% and 28.7%, respectively.

Russian ferrous metal and related exports in Jan-April 2015 compared with January-April 2014: Commodity TOTAL. $ mln Non-CIS. $ mln CIS. $ mln `000 tonnes `000 tonnes `000 tonnes Iron ores and concentrates 8 445.7 464.7 7 310.6 414 1 135.1 50.7 Change 7.3% -41% 9.6% -40.7% -5.5% -43.7% Bituminous coal 47 371.4 3 276.8 43 474 2 977.6 3 897.5 299.2 Change -4.9% -19.6% -6.1% -20.3% 11.6% -12.4% Coke and semi-coke 775.8 109.9 291 37.7 484.8 72.2 Change 13.3% -7.3% -22.3% -44.9% 56.4% 44.1% Ferrous metals (excluding pig iron. ferroalloys. scrap and waste) 9 511.4 4 052.5 8 060.6 3 326.5 1 450.8 726.1 Change -23.2% -38.2% -24.2% -39.9% -16.9% -28.7% Pig iron 1 550.1 497.7 1 520.3 488 29.7 9.7 Change 21.9% 0.2% 24.8% 3.3% -44.9% -60% Ferroalloys 239.3 438.2 230 421.8 9.4 16.4 Change -23.7% -26.8% -22.9% -26.2% -38.6% -39.7% Semi-finished carbon steel products 4 920 1 806.3 4 816.5 1 771.4 103.5 34.9 Change 19.1% -13% 17.8% -13.9% in 2.5 66.2% Flat carbon steel products 2 753.2 1 248.9 2 310.4 996.7 442.8 252.1 Change 1.7% -19.6% 4.1% -19.1% -9.3% -21.6%

Ferrous metal imports fell 44.3% in January-April. Imports from non-CIS countries fell 27.7% and imports from the CIS fell 52.5%. In value, overall imports fell 53%, with drops of 39.8% for imports from non-CIS and 70% from CIS countries.

Russian ferrous metal and related imports in Jan-April 2015 compared with January-April 2014: Commodity TOTAL, $ mln Non-CIS, $ mln CIS, $ mln `000 tonnes `000 tonnes `000 tonnes Bituminous coal 7 723 166.3 28.9 4.6 7 694.1 161.8 Change 16.9% -14.3% 82.9% 48.4% 16.7% -15.2% Ferrous metals (excluding pig iron, ferroalloys, scrap and waste) 886.5 701.2 383.7 446.1 502.9 255.1 Change -44.3% -53% -27.7% -39.8% -52.5% -70% Pipes 118.5 229.5 66.1 179.4 52.4 50.1 Change -48% -42% -42.8% -32.3% -53.4% -61.8%

Russia & CIS Metals and Mining Weekly, May 29 – June 4, 2015 21 www.interfax.com

22 Coal production in 4M up 6%, metal ores - 2% - Econ Ministry MOSCOW. May 29 (Interfax) - Coal production in Russia in January-April 2015 rose by 5.8% year-on-year to 118.9 million tonnes, monitoring of Russian economic sectors for April of this year published by the Economic Development Ministry said. In particular, 31.4 million tonnes of coal were produced in January 2015, 29.4 million tonnes in February, 30 million tonnes in March, and 28.1 million tonnes in April. For the reporting period coal exports, on the other hand, fell by 3.8% to 45.3 million tonnes (9.9 million tonnes, 10.9 million tonnes, 12.7 million tonnes and 11.8 million tonnes, respectively). The production of metal ores in the first four months of this year rose by 1.8% to 34 million tonnes. The exports of this type of product fell by 4.4% to 31.3 million tonnes. In April, exports of metallic ores rose to 25.5 million tonnes, while the monthly shipments abroad for January- March varied in the range of 1.2 million-2.9 million tonnes.

Russia & CIS Metals and Mining Weekly, May 29 – June 4, 2015 22 www.interfax.com

23 CURRENCY RATES

Official exchange rates for CIS and Baltic nations as of 04.06.2015

Country Currency For $1 For 1 ruble For 1 EUR Armenia dram 477.52 8.68 542.27 Azerbaijan manat 1.0479 0.0193 1.1808 Belarus bel.ruble 14943 281.22 16657 Georgia lari 2.3013 0.043127 2.5581 Kazakhstan tenge 185.95 3.49 207.04 Kyrgyzstan som 58.9 1.1101 65.5528 Moldova leu 18.2223 0.3414 20.2659 Russia ruble 53.059 59.113 Tajikistan somoni 6.2602 0.131 6.9657 Turkmenistan manat 3.5 0.065601 3.8906 Ukraine hryvnia 21.005961 0.3959 23.388037 Uzbekistan sum 2537.54 47.9 2775.36

Russia & CIS Metals and Mining Weekly, May 29 – June 4, 2015 23 www.interfax.com

24 ANALYTICAL REPORTS

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