DTEK boosts coal mining in Ukraine 44% m/m in July

Ukraine’s leading coal & power holding DTEK Energy (DTEKUA) mined 15.44 mmt of coal in Ukraine in 7M16, an increase of 1% yoy, Concorde Capital estimated based on preliminary data reported by Interfax-Ukraine on August 3. DTEK’s mining of hard steam coal decreased 12% yoy to 11.58 mmt, while mining of anthracite coal on the occupied territories of Ukraine jumped 80% yoy to 3.86 mmt.

Total production of steam coal by all Ukrainian mines decreased 4% yoy to 17.42 mmt in 7M16, while DTEK’s market share increased to 89% from 84% a year ago.

The provided data indicates DTEK’s coal mining in Ukraine was 2.58 mmt in July, rising 13% yoy and 44% m/m. Importantly, its mining of hard steam coal, which was declining yoy during the first half of the year, was flat yoy in July at 1.85 mmt, or a 9% m/m increase. DTEK’s mining of anthracite coal was restored in July to 0.732 mmt, a 68% yoy jump, after the disastrous results of June 2016 at 0.095 mmt. According to DTEK’s data, it managed to ship 0.510 mmt of its anthracite coal to its power plants in July. At the same time, DTEK stressed that supplies of this type of coal (mined only on the occupied territory of Donbas) remain unstable.

The holding expects that all Ukrainian thermal power plants (TPPs) will demand 35% more coal in 2H16, as compared to the first half of the year, according to DTEK’s Aug. 3 press release. The higher demand for electricity produced by TPPs, caused by a decline in output of nuclear power plants, resulted in coal stockpiles at TPPs being reduced to 0.93 mmt as of end-June, which is 30% less yoy. Anticipating a deficit of coal, DTEK declared its readiness to purchase any coal from state-controlled mines.

Alexander Paraschiy: DTEK’s mining trend and expectations for increased demand for coal in 2H16 implies the holding is targeting to increase its coal mining in the coming months. That means we need to upgrade our 2016 DTEK forecast of flat yoy mining. Increased coal mining and power generation, coupled with better electricity rates, will improve DTEK’s ability to generate cash flow in the coming months – its 3Q16 financial results promise to be exceptionally strong.