Daily analyst comments

On August 17, the Russian Federal Property Fund announced an auction to sell off 68.86% in Elgaugol and 75% - 1 share in Yakutugol. The initial price of the lot is Rub 47.396 bln ($1.84 bln). The auction is scheduled for 1 pm Moscow time on October 5, 2007. Bids will be accepted until October 1, 2007. As of this date, we will know precisely which companies are in the bidding for these assets.

Russian companies which Russian market participants view as potential bidders of Yakutia-based coal assets have not yet disclosed their plans in relation to the upcoming auction. Mechel (RTS: MTLR) which owns a blocking stake in Yakutugol and is interested in upping its equity position to a controlling interest is viewed as a favorite. "We are interested in raising our stake in Yakutugol to a controlling interest. However, we will adopt the final decision whether to bid in the auction for a stake in this coal company only after the terms of the tender have been officially announced", the group's press secretary Alexei Sotskov said previously. He told Interfax Friday that Mechel is reviewing the terms to auction off shares in Yakutugol and Elgaugol "in order to adopt a decision on possible participation in the auction". Such companies as Swiss Glencore, Japanese Sumitomo and Mitsui, Evraz Group, Novolipetsk Metallurgical Plant (NLMK) and Alrosa (RTS: ALRS) also voiced interest in the auction. Reports have circulated on the market that Oleg Deripaska's Basic Element is also eying these assets, especially Elgaugol. For this reason, we do not rule out that Basic Element could team up with another company (e.g. Mechel) interested only in Yakutugol in order to win the auction.

At present, it is too early to speak of possible benefits for the companies if they win this auction, since the shortlist of bidders has yet to be finalized.