Metinvest affiliate Donetsksteel EBITDA drops 1% in 2018

EBITDA at private joint stock company Donetsksteel
dropped 1% yoy to USD 178 mln in 2018, according to the company’s annual
accounts. PrJSC Donetsksteel is a part of Pokrovske Coal assets, in which
Ukraine’s largest steel producer Metinvest (METINV) acquired a 24.99%
stake in 2018. Donetsksteel’s 2018 coal concentrate
production reached 2.30 mmt, a 10% yoy decline.

 

PrJSC Donetsksteel’s revenue fell 18% yoy to USD 462
mln in 2018. Its average price of coal concentrate rose 10% yoy to USD 196/t.
In 1Q17, Donetsksteel sold 59 kt of pig iron it produced.

 

Starting 2Q17, its business was exclusively the enrichment of coking coal produced by PrJSC Pokrovske
Coal, another part of Pokrovske Coal assets, according to
Concorde Capital’s analysis.

 

PrJSC Donetsksteel’s total debt amounted to USD 1,249
mln at the end of 2018, including USD 704 mln of bank credits, USD 484 mln of
interest accrued, and USD 61 mln of court-imposed penalties. This is a 24% yoy
increase from USD 1,009 mln at the end of 2017 (including USD 751 mln of bank
credits and USD 258 mln of interest accrued).

 

Dmytro Khoroshun: We
calculate that the total EBITDA of Pokrovske Coal assets (combining PrJSC
Donetsksteel and PrJSC Pokrovske Coal) was USD 226 mln, down 25% yoy. We
earlier reported PrJSC Pokrovske Coal’s EBITDA at USD 29 mln in 2018,
but we are now adjusting it for two one-off items to USD 48 mln.

 

Pokrovske Coal assets’ EBITDA per ton of concentrate
dropped 16% to USD 98/t in 2018, including USD 21/t (down 55% yoy) at PrJSC
Pokrovske Coal (coal extraction) and USD 77/t (up 11% yoy) at PrJSC
Donetsksteel (coal enrichment). Cash operating costs per ton of concentrate
jumped 58% yoy to USD 98/t.

 

In its 2018 financial statements, Metinvest mentions,
as its assumptions for its valuation of Pokrovske Coal assets, USD 191/t as the
2019 price of coal concentrate and 64% as its EBITDA margin, which yields an
EBITDA of USD 122/t and cash operating costs of USD 69/t for 2019.

 

In its annual report for 2018, PrJSC Pokrovske Coal
said it planned to increase production volumes 42% yoy in 2019 to 5.63 mmt of
raw coal (the equivalent of about 3.2 mmt of coal concentrate), but in 4M19 its
output declined 7.3% yoy to 1.36 mmt of raw coal.

 

To summarize, Pokrovske Coal assets underperformed
financially in 2018, although the jump in costs might be transitory as the
assets adapt to the new ownership. Their heavy (gross debt/EBITDA of 5.5x) and
growing debt load, which Metinvest said is a subject of restructuring discussions,
requires a boost in production volumes to be relieved, but the assets
underperformed during 4M19.