Research Notes

The Raspadskaya coal mine substantially increased coal output in 2007, and we have raised our outlook for coal production at the mine in the years to come. Taking into account current market conditions, we have also raised our projections for prices on coking coal and concentrate in the medium and long terms. The target price for Raspadskaya shares has risen to USD 8.67 per share, up 15% on the current share price.

• In mid-January, Raspadskaya reported coal production in 2007 at 13.6 mn tons, up by more than 27% on the 10.6 mn tons mined in 2006. An increase of production growth has led us to raise our outlook for coal production at the mine in subsequent years. The growth of production and sales are to enable Raspadskaya to improve its financial performance in 2007 and onwards.
• The purchase of Ukrainian metallurgical assets by Evraz Group, a key Raspadskaya shareholder, should positively affect the mine's performance, and enable it to divert coal supplies to the Ukrainian market, where conditions are more favorable than in Russia. The assets comprise of a metallurgical plant and several coke producers, with a total capacity of 3.2 mn tons of coke a year.
• A merger between Raspadskaya and Yuzhkuzbassugol could provide an additional upside driver for Raspadskaya shares, as the combined company would strengthen its market position.

We expect the current market conditions to continue through FY 2008, and enable the company to post excptional financial gains. We assign Buy recommendation to Raspadskaya shares.

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Denis Gorev

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