DTEK plans to boost Dobropillia coal mining by 0.7 mmt in 2017

DTEK Energy (DTEKUA) announced on April 20 it approved a strategy to boost coal mining at Dobropillia Coal through 2020. The plan calls for coal mining to rise 0.7 mmt, or 25% yoy, to 3.5 mmt in 2017. The holding is going to invest about UAH 1 bln (USD 36 mln) into developing the mine in 2017 and cumulatively about UAH 4 bln by the end of 2020. Annual coal production at the mine is expected to grow to 5.0 mmt by the program’s completion.

Dobropillia Coal (including Belozerska Mine) produced 2.77 mmt of raw coal in 2016, or 9.4% of DTEK’s total coal output in Ukraine. The mine is located in the Ukrainian-controlled part of the Donetsk region.

Alexander Paraschiy: After the loss of control of its three mines in the occupied territory (which mined 8.0 mmt of coal last year, or 28% of DTEK’s total), the holding has no choice but to invest heavily in the growth of coal mining in its remaining mines. The announced plan at Dobropillia is a bit more conservative than the 3.8 mmt of coal in 2017 that DTEK’s CEO announced a month ago.

It will be more critical for us to hear what are DTEK’s plans regarding its biggest mine, Pavlograd Coal, which mined last year 18.4 mmt of raw coal, or 63% of DTEK’s total. Earlier, DTEK’s CEO announced the mine can produce 19.0-20.0 mmt of coal this year.

We see DTEK may indeed increase its mining at Pavlograd by up to 1.0 mmt yoy, which will result in DTEK’s total 2017 mining at about 22.9 mmt (-22% yoy), excluding 1.9 mmt that were mined at its assets located on the occupied territories before it lost control over them.

Such an amount of mining, as well as about 1.5 mmt of imports of anthracite coal, will cause DTEK to lose power generation at its plants by a modest 10-12% yoy in 2017, despite the significant loss of its mining and generation assets. So far, we remain cautiously optimistic about the performance of DTEK Eurobonds this year.