Actuality December 13, 2007

   Transaction on acquisition at the Privat Group of metallurgical assets in Ukraine will cost Evraz Group more than $2 bln. An agreement is advantageous for both parties; besides the price for the first for the Russian metallurgists entrance ticket to the Ukrainian market is not very high.

   Evraz Group acquires majority stockhold ings of some production enterprises

in Ukraine. As it is said in the official report, they include 99,25% stocks of JSC Mining and Processing Integrated Works „Sukhaya balka" (production capacity is 3,75 million tons of sintering ore a year), 95,57% stocks of JSC Dnepropetrovsk Iron and Steel Works named after Petrovsky (capacity – 1,8 million tons of cast iron and 1,23 million tons of steel a year). In addition, Evraz becomes the owner of 93,74% stocks of JSC Bagley cockery, 98,65% stocks of JSC Dniepropetrovsk cockery and 93,83% stocks of JSC Dneprodzerzhinsk cockery. Total capacity of these three enterprises makes 3,52 million tons of metallurgical coke a year. By preliminary estimation of Evraz specialists, these assets cost $2-2,2 bln, $1 bln from which will be paid in cash, and other – in stocks of the Russian business concern, issued during additional emission.

   Transaction between Evraz and Ukrainian Privat Group, to which these enterprises belong, is already closed. Referring to the first vice-chairman of Privatbank Timur Novikov, who declared that the total transaction cost totaled more than $3 bln. "The transaction is already closed. The stockholders of the sold Ukrainian enterprises received money and stocks of Evraz partly".

   However, Evraz vice-president Irina Kibina categorically refuted information about completion of transactions and their terms.

"If transactions have been closed, Evraz would have reported about it immediately", she said, reminding that the company has listing on LSE and bears responsibility for concealment or untimely information disclosure, up to criminal one. According to her, final terms and structure of transactions, about which it was declared, should be approved in Evraz board of directors on the basis of conclusion of international organization of appraisers, who would estimate the acquired assets independently.

And as an appraiser is not determined yet – accordingly, the fair value of the Ukrainian assets is also unknown.

   And nevertheless, not only the sum was declared, but also structure of transaction.

As it turned out, the Ukrainian assets were bought back by the main stockholder of Evraz, the company Lanebrook Limited. "The transaction on the purchase of these assets at the former owners is already completed. Lanebrook will sell stakes in these Ukrainian enterprises to Evraz Group", declared the stockholder representative.

On the assumption of the supposed sum that Evraz will spend on acquisition of these assets, and current capitalization of the Russian Lanebrook Group will be able to increase the stake in Evraz from 83% to 86%.

   Presently, Lanebrook beneficiaries in equal stakes are investment company Millhouse, managing assets of Roman Abramovich and his partners, and also Aleksander Abramov and Aleksander Frolov. Maybe so nervous reaction of Evraz representatives on reports about the acquisition of the Ukrainian metallurgical assets is caused by the possible charges of rights violation of the company minorities, as there is no visible necessity in realization of similar two stage "transaction with the personal interest". As Dmitriy Skvortsov from Bank of Moscow marks, if Evraz is going to spend about $1 bln in this transaction, so for financing the rest of transaction it may need to issue about 2,5-5 % stocks during additional issue. An analyst marks that the main threat of Evraz minority stockholders consists in that during this transaction the business concern stocks can be estimated with a substantial discount to the market, because

of that the size of additional issue will be unjustly increased, and stake of minorities – unjustly washed out.

   However, the agreement is indeed profitable for the main characters. "We consider these acquisitions as another important stage of our strategic plans realization. With this acquisition in Ukraine will grow the level of our self-sufficiency with iron ore raw materials and Evraz integration to the mining segment will continue.

The acquired by-product coke enterprises will create additional opportunities for the sale of the coked coals, extracted on the company coal mines. The acquisition of JSC Dnepropetrovsk Iron and Steel Works named after Petrovsky will allow to diversify the production on its geography more, thus in the direction of further decline of its cost", described the situation Aleksander Frolov, Evraz president and

the chairman of board of directors.

   The majority of analysts agree with him. Alfa Bank specialists mark that the transaction can become the source of additional benefit for Evraz. Iron ore assets will promote Evraz self-sufficiency in iron ore, and Evraz itself will be able to supply the coked coal to the reacquired coke production capacities in Ukraine.

Moreover, Dnepropetrovsk Iron and Steel Works is located geographically very advantageously, its section iron can be easily sent by the Black sea to Sochi.

   Dmitriy Skvortsov also positively estimates this transaction for Evraz, this acquisition will also allow Evraz to get the substantial synergetic effect, because after transaction closing its subsidiaries – Raspadskaya mine and Yuzhkuzbassugol – will get the assured source of its coals sale in the form of the Ukrainian by-product coke enterprises.

   In their turn, Ukrainian observers mark that Privat Group coowners – Igor Kolomoyskiy and Gennadiy Bogolyubov, who began joint business in the second half of the 80th, and after 20 years became the coowners of the second-largest business group in Ukraine, used the simple tactic – to buy and take under control all what is possible. As a result, Privat became the enormous conglomerate, where the enterprises of the most different sectors of economy are mixed – from metallurgy and energy to food and real estate. "Were buying everything that was cheap", Ildar Gazizullin explains, expert of the International centre for policy studies.

Now it is time advantageously to sell the accumulated out – to this slightly pushes both the situation on world markets, and political situation in Ukraine.

   According to Fitch Ratings forecast, there are terms for

the price increase on steel on the majority of markets in 2008, however, demand exceeding above supply on the raw material markets, probably, will result in the margin decline for producers, not supervising the sources of iron ore, coke, cast iron and scrap metal.

"Is it expected that expenses growth on iron ore, coke transportation in the absence of vertical integration will result in the increase of expenses in the blast-furnace production of steel by $60-70 per a ton", is said in Fitch report.

   But if with steel prices it is more or less clear, it is more difficult forecasting the conduct of the Ukrainian legislative body – Verkhovna Rada. Department director of the Independent Consulting Group "2K Audit- Business consulting "Aleksander Shtok reckons that hardly Evraz would risk so impressive sum without guarantees.

In addition, acquisition of at least one of the enterprises should pass approval of antimonopoly st

ate bodies. It is JSC Mining and Processing Integrated Works „Sukhaya balka" that is a monopol ist on the production of sintering ore on the Ukrainian market.