DTEK switches unit to hard coal, plans to raise mining to 24.5 mmt in 2018
30 October 2017
Coal and power holding DTEK Energy (DTEKUA) has completed its first project to convert a 150 MW power unit to burning hard coal (from anthracite), according to its Oct. 27 press release. This first converted power unit at Prydniprovska thermal power plant has been already commissioned, and another one will be ready in mid-November, according to the holding. The conversion will enable conserving about 1.1 mmt of scarce anthracitic coal a year, according to DTEK. By the end of this year, DTEK will receive 0.675 mmt of anthracitic coal from South Africa and 0.15 mmt of hard steam coal from the U.S.
In other news, DTEK Energy CEO Dmytro Sakharuk announced that the holding plans to produce 24.5 mmt of coal in Ukraine in 2018, or 6.5% more yoy. The company plans UAH 11.5 bln (about USD 400 mln) in total investments in the mines to reach that target.
Alexander Paraschiy: This news implies DTEK is going to mine 23.0 mmt of hard steam coal in 2017 (a 8.6% yoy increase), which looks like an ambitious plan. Based on recent production numbers, we estimate DTEK will mine 22.5 mmt of hard coal this year. Increased consumption of hard steam coal, prompted by the conversion of two power units, will widen the deficit of hard steam coal in the current heating season and will prompt higher imports of this type of coal in late 2017 and early 2018. Further conversion of anthracite-burning power units to hard steam coal, which DTEK plans to continue in the next year, will only expand this deficit in the next heating season.
That said, the share of imported coal in DTEK’s fuel mix will increase in the next year, which in turn will inflate the costs of its power generation. Most likely, the higher costs will be more than compensated by better power rates, which will be revised by the regulator closer to the end of 2017. All in all, we expect DTEK’s operating profit will remain in 2018 on levels close to those reported in 2016 and 2017. We remain bullish on DTEKUA bonds.
