Calgary  Toronto  Moscow  Almaty  Caracas  Bogotá  Rio de Janeiro Legal Aspects of Foreign Direct Investments in Russia's Mining Sector: New Challenges Anatoly Andriash Managing Partner Moscow office, Russian Federation CERBA - Annual Russia and CIS International Mining Conference March 9, 2011

Macleod Dixon International law firm serving clients from offices across four continents Firm's mining lawyers are qualified in a number of different jurisdictions, Colombia being the latest jurisdiction where Macleod Dixon has opened an office One of the longest established track records of any law firm in Russia Mining Practice: represent many of the world’s leading resource companies, national and international corporations, public and private businesses, at home and abroad Macleod Dixon’s Moscow practice is the only law firm to receive a first tier ranking under the mining category in Russia from Chambers & Partners in 2008, 2009 and 2010 Macleod Dixon has been named Global Mining Law Firm of the Year 2010 in the Who's Who Legal Awards

The “Anna Karenina” Principle First sentence from Leo Tolstoy’s novel “Anna Karenina”: –“Happy families are all alike; every unhappy family is unhappy in its own way.” The underlying theme of Tolstoy's novel is, in order to be happy, a marriage must be harmonious in many different respects: agreement about money, child discipline, religion, in-laws, etc.

Applying the “Anna Karenina” Principle to Mining Regimes “Mining regulatory regimes that foster investment are all alike; every mining regulatory regime that discourages investment does so in its own way”

The Investor’s “Three Pillars” Investors in exploration and production activity in mining are concerned about three key aspects of the legal and contractual regime: Absence of any one of these three aspects, puts the investment favourability of the regime at significant risk, and may justify a decision not to invest Right to Produce Stability Enforceability

Rights to Produce Discovery of a field of Federal Significance Production rights may be terminated or withheld by the State Threat to state defence or national security Unclear and broad Increase of risk and disincentive to invest

Stability of Rights In the case of a discovery, a subsoil user may have a right to convert a geological licence into a production licence Such right of a subsoil user for the conversion is not automatically obtained Grandfathering ClauseDoes not apply to all investment projects

Investment Trends in Russia’s Mining Sector I.Enhanced role of Russian resource nationalism since adoption of legislation concerning subsoil strategic deposits (May, 2008) II.Russian companies risk losing licences and consider foreign partners III.Authorities’ reluctance to modify licence terms IV.Few takers at licence auctions V.Swaps are an alternative to cash in M&As VI.Last year resurgence in mining mergers and acquisitions is set to accelerate in 2011

Improving Investment Climate New legislation: I.Enforcing pledges and mortgages II.Bankruptcy III.Shareholders’ agreements recognized IV.Reform of LLCs/JSCs V.Profit Tax reduced to 20% VI.Antimonopoly law amended VII.Proposed changes to current legislation in mining sector

Shareholders Agreement Recognized Permitted scope of agreements appears restrictive; may include: a)obligation of parties thereto to vote at general shareholders' meetings b)voting options c)acquisition or disposition of shares at a pre-determined price and/or upon occurrence of pre-determined circumstances; and d)abstaining from disposal of shares and to perform other agreed actions in respect of managing the company, its activities, reorganization and liquidation

Shareholders Agreement Recognized (cont.) Practical implementation of shareholders’ agreements remains unclear Can issues, not directly within scope of shareholders' agreement and commonly dealt with in shareholders’ agreements governed by laws of other jurisdictions, be elaborated in agreement? i.e.: a)obligations relating to profit-distribution b)financing of company; and c)establishing control over management decisions, etc.

Reforms of Corporate Legislation Notary public required for transfers of participation interests Converting debt into equity

Proposed Changes Deposits of Federal Significance (Laws 57 and 58) 1.Change definition of control for strategic entities involved in subsoil use: increase threshold from 10% to at least 25% 2.Change definitions and wording to exclude purely “Russian” companies (with offshore subsidiaries) from scope of the law 3.Replace State’s right to refuse granting licence for final exploration and production for newly discovered subsoil strategic properties, with the right to demand decrease in foreign investor’s ownership to 50%, minus one share 4.Abolish requirement to complete all exploration works prior to commencement of production 5.Increase “strategic” threshold for gold properties

Proposed Changes (cont’d) Change General Regime of Subsoil Use to: 1.Achieve consistency between Subsoil Law and Licensing Regulations 2.Improve access to geological information owned by the State 3.Guarantee automatic conversion of a geological licence into a production licence 4.Eliminate obstacles during transfer procedure of a subsoil licence 5.Other improvements

Contact Details Macleod Dixon Paveletskaya Plaza, 2/3 Moscow Russian Federation Tel.: +7 (495) Fax: +7 (495) Anatoly Andriash, Managing Partner Macleod Dixon – Local Depth, International Expertise