DTEK boosts coal mining 16% yoy in Ukraine in October

Ukraine’s leading coal and utility holding DTEK Energy (DTEKUA) mined 2.77 mmt of coal in Ukraine in October, Concorde Capital learned from sector-wide data provided by Interfax-Ukraine. This is 4% more compared to September (and flat m/m on a daily average basis) and 16% more than a year ago. Its mining of hard steam coal was 1.89 mmt (-2% m/m, -5% m/m on an daily average basis, +5% yoy) and mining of anthracite coal on the occupied territories of Donbas amounted to 0.87 mmt (+19% m/m, +15% m/m on a daily average basis, +53% yoy).

In 10M16, DTEK Energy increased coal mining 4% yoy to 23.38 mmt, mostly due to a 65% yoy surge in anthracite mining (to 6.16 mmt). Its production of hard steam coal fell 8% yoy to 17.22 mmt.

Alexander Paraschiy: Despite the increase in anthracite coal mining by DTEK this year, stockpiles at six anthracite-burning Ukrainian power plants were 22% lower yoy as of Nov. 6, which indicates this type of coal is not easy to deliver to consumers in Ukraine from the occupied territories. At the same time, the ability to deliver it significantly improved in the recent months, which will enable DTEK to further boost mining this type of coal.

Decreased production and increased use of hard steam coal by Ukrainian power plants this year also resulted in declined stockpiles (-18% yoy as of Nov. 6) and prompts a high future demand for this type of coal as well.

We expect DTEK Energy will be able to raise coal mining in November and December and report a 5% yoy increase in mining in 2016, or even slightly more. In the next year, the holding is likely to slightly improve coal production as well.

Our view on DTEKUA Eurobonds remains bullish – we still expect some upgrade of their prices, which will be fuelled by the completion of their long-term restructuring. We also note that DTEK’s bonds remain inferior to the notes of related Metinvest (METINV) as the steel holding is less dependant on local regulators in pricing its products and its debt restructuring proposal looks more interesting for bond holders (which, unlike DTEK’s offer, includes payment of interest on delayed coupons).