DTEK Energy updates on its July operations

Ukraine’s leading coal and power holding DTEK Energy (DTEKUA) increased coal mining 40% m/m in July to 2.82 mmt, according to its monthly report. The increase was due to 9% m/m growth of hard steam coal mining (to 1.85 mmt) and 3x m/m growth of anthracite coal mining (to 0.97 mmt). The boost in anthracite coal mining was due to a recovery from nearly no production (0.09 mmt) in the occupied territories of Donbas in June to 0.73 mmt in July, we calculate. Coal mining at Russian mines increased 4% m/m to 0.24 mmt in July, we estimate. In 7M16, DTEK’s total coal mining amounted to 16.72 mmt, including 15.44 mmt in Ukraine (+1% yoy), based on our calculations.

DTEK also reported it sold 2.21 mmt of coal in July, +53% m/m. Outside Ukraine, the holding sold 16% less coal m/m, or 0.16 mmt. DTEK imported no coal in July, nor in 7M16.

The holding also reported on a 30% m/m increase in sales of electricity generated in July (to 3.43 TWh), which is in line with what we earlier estimated the holding produced (3.92 TWh, or 31% more m/m). As we earlier reported, DTEK Energy’s power generation was 8% lower yoy in 7M16.

Alexander Paraschiy: There are no surprises in DTEK’s operating update, given that most of the sector data was available earlier. The only news that we can draw from DTEK’s report is its mining results in Russia. What we can learn is the holding increased Russian mining by about 11% yoy to 1.28 mmt in 7M16, and is likely to meet its 2016 production plan in Russia of 2.5 mmt (and beat our forecast of below 2.0 mmt). However, given that DTEK Energy is currently in the process of spinning off Russian mines, these statistics are of little importance for DTEKUA bondholders.

We expect DTEK Energy will increase coal mining by 5% yoy in Ukraine in 2016 (earlier, we expected flat yoy production). At the same time, we continue to expect that the holding will reduce its power generation by 5% yoy this year. Our view on DTEK Energy bonds remains neutral.