On 24 April 2009, Mechel OAO (Mechel) reported a gross y-o-y decline in production during 1Q 09, reflecting a sharp fall in demand from the construction and machinery industries. Going forward, although we remain concerned about Mechel’s high level of debt, we are encouraged by its moves to acquire Bluestone Coal Group, which should enhance its long term growth prospects (refer to our company news alert dated 23 April 2009). Therefore, although the target price derived in our last update report does not support a HOLD rating, we maintain our 6-12 month HOLD rating for the ADR. We will reassess our ADR (1 ADR = 1 Russian share) rating after the company issues its FY 2008 results. As the Russian stock trades in US dollars, we do not anticipate any currency impact over our investment horizon. Therefore, we maintain our 6-12 month HOLD rating, in line with our fundamental outlook. We will reassess our Russian stock rating after the company issues its FY 2008 results.

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