Investor Update

1
Investor Update
2
Scope and limitations

• All financial and other information contained in
  this presentation has been obtained from and
  prepared on the basis of publicly available data
  or data prepared by the management of the
  Portfolio Companies, Varyag Resources has not
  verified such data for its completeness or
  accuracy Varyag Resources does not make any
  representation or warranty, nor does it assume
  any liability, as regards completeness or
  accuracy of financial or other information which
  has been obtained from such publicly available
  sources, or from the management of the Portfolio
  Companies.
• The presentation contains projections, estimates
  and descriptions of the Managers plans and
  objectives, such estimates are forward-looking
  statements. Actual future results, including the
  results of the Portfolio Companies, the nature
  and timing of investments and/or divestments made
  by the Company, actual financial returns achieved
  on any such investments could differ materially
  due to, among other things, market factors and
  the actions of the Company as well as other
  factors discussed elsewhere in this
  presentation.
• The details of certain proposed or actual
  transactions have not been disclosed in cases
  where such disclosure would actually or
  potentially breach any prevailing market
  regulations, including (but without limitation
  to) the Stockholm Stock Exchanges Listing Rules.

3
Investment Case

• Access to the private equity market in Russia and
  the CIS
• Capitalizing on the unique knowledge and
  experience of the Investment Manager Team
• Value added by creating financial transparency
• Long term Russian economy growth
• Unique opportunity with an attractive
  risk/reward profile

4
Strategy

• The combination of low costs and an outstanding
  resource endowment means that Russian resource
  companies have an enormous competitive advantage.
• The Company is focused on sectors which will
  benefit from stable global and domestic
  incremental demand at reasonable valuations.

5
Strategy

• Capital raised shall be invested within 18-24
  months
• A target IRR of 30 p.a. for individual
  investment
• Primarily equity financed acquisitions
• Exits within 3-4 years after initial investment
• Investment Manager Team - local experience

6
Structure
Management agreement 2.5 annual fee 20 carry
over an 8 hurdle rate
7
Investment Advisory Committee

• The investment advisory committee provides
  invaluable
• economic, political and market insights. The
  three members
• are recognised leaders in their respective fields
  and will
• challenge proposals presented by the Investment
  Manager.
• Mikhail Zadornov
• President of VTB24, Minister of Finance (1997 to
  1999), former member of the Board of the Central
  Bank of Russia
• Sergei Vasiliev
• Senator representing the St.Petersberg Region,
  member of the Federation Council and Chairman of
  the Committee on the Securities Market.
• Alexander James Stewart
• Over 20 years in global and emerging market
  equities with leading financial institutions
  (including RZB and Deutsche Morgan Grenfell).

8
Varyag share

• IPO 8,868,800 shares at SEK 50 per share (pre
  issue costs).
• Rights issue 4,434,400 shares at SEK 45 per
  share.
• Total shares outstanding 13,303,200.

9
Varyag shareholders

• 2/3 Institutional
• Swedish 80 International 20
• 1 200 shareholders
• CEO 204 000 shares
• Inv Man 202 700 shares

10
Achievements to date

• Consolidated 5 large regional forestry companies,
  now have full ownership or majority control over
  1.654 million m3 of annual allowable cut (AAC)
  covering 1 million hectares.
• Construction and commissioning of Bogouchanski
  LPK sawmill after 14 months of work - output on a
  single shift basis - 100,000 m3 of kiln dried
  sawnwood output.
• Foundations complete for second sawmill at
  Magistralnaya to start work in 2009.
• Developed greenfield gravel business,
  commissioning of primary crusher complete and
  secondary crusher to be completed in Q4-08

11
Location of Holdings
12
Summary of holdings
12
13
Forestry - China incremental demand for roundwood

• Source of incremental demand for sawlogs,
  currently importing some 19 million m3 of
  softwood.
• 86 of this amount supplied from Russia.
• Demand for sawnwood is likely to increase given
  increase in export duties.

14
Russian domestic forestry sector

• The introduction of a prohibitive duty on the
  export of sawlogs to EUR 50 per m3 is designed to
  encourage the addition of sawmilling capacity
  domestically.
• The new Forest Code is currently being
  implemented, the ability to offer forest leases
  as security on debt should increase our ability
  to leverage the portfolio companies.

15
Forestry macro environment

• Prices reached a high at the top of the global
  GDP cycle and have come down since then largely
  as a result of the ongoing U.S. housing/sub-prime
  problems.

16
Rusforest relative size
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Comparison of forestry prices

• Russian forest land is cheap on a global basis,
  although outright ownership is not possible under
  Russian Law.

18
Rusforest target markets

• Gradually moving away from North African/Middle
  East market as too much volume being sold into
  those markets and prices coming under pressure.
• Russia is still a very small market, mainly due
  to a lack of well organised builders merchants,
  however Central Asian markets becoming
  increasingly important.

19
Forestry holdings
20
Rusforest investment programme

• Successfully implemented the following investment
  
• programmes
• Built a new Hew-Saw R-250 sawmilling line and
  re-built all associated equipment at Bogouchanski
  LPK.
• Started-up harvesting operations using
  Timber-jack equipment at TSLKK.
• Expanded kiln drying capacity at PIK-89 by 50 in
  2008.
• Work on Rusforest-Magistralnaya sawmill
  foundations completed.

21
Rusforest growth plans

• Investment required to develop two sawmills has
  already been included in the investment cost,
  only some further bank debt is needed.

22
Aggregates external environment

• Aggregate prices have been growing strongly in
  the recent past, however there are likely to fall
  in light of the construction slowdown.

23
Progress at Russian Gravel Company

• Funding of some USD 18 million disbursed.
• Primary crusher installed and working, secondary
  crusher to be completed before year end.
• Work on railhead completed, final step is to
  receive approval from Russian Railways to use
  weighbridge and connection of lights to main
  signal box - expected to be completed by year-end.

24
Financial targets for Russian Gravel

• Target output of 1.7 million tonnes of sellable
  aggregate per year, weighted average sales price
  of USD 15.5 per tonne (ex mine and ex VAT), based
  on the following fractions
• Total operating costs are expected to be some USD
  6 per tonne (cash costs) once the facility
  becomes fully operational.

1m3 is approximately equal to 1.4 tonnes
25
Financials

• Impairment tests - WACC 18 - no need for
  write-downs
• Equity to Asset ratio () 99.7
• Shareholders Equity (SEK) 46.2
• Share price (SEK) 11.0
• Price/Equity value () 23.8

26
Coming events

• Bogouchanski sawmill moving to full capacity.
• First sales from Russian Gravel Co.
• IFRS accounting for Russian Gravel Co. and
  Rusforest
• First exits expected 2010

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Closing remarks

• Varyag has achieved meaningful exposure in the
  forestry and gravel sectors.
• No bank debt at Varyag or the portfolio
  companies.
• Global slowdown will effect portfolio companies,
  however depreciation of rouble - advantage for
  Rusforest.
• New investments moving to positive cash flow
  after commissioning of Bogouchanski LPK and
  target start of gravel sales at Russian Gravel Co.