Coal Energy production almost flat m/m in December

Coal Energy (CLE PW) decreased its coal production 0.6% m/m to 65.7 kt in December, which came in 56% lower yoy. Underground mining grew 2.4% m/m to 53.9 kt, owing to a 21% increase in coking and dual-purpose coal extraction to 9.9 kt, while thermal coal mining slid 1.7% m/m to 43 kt. In a yoy comparison, underground mining plunged 61%, falling in both segments, but coal production from waste increased 45% yoy to 10.6 kt. Hence in 1HFY14, total coal output plummeted 63% yoy to 396 kt.

Roman Topolyuk: December coal production was very close to the average monthly volume of 66 kt in 1HFY14, thus in line with Coal Energy’s plan to maintain lowered output levels in order not to build up stockpiles against the weak market conditions. Our base case expectations foresee stable production in 2HFY14 unless the company manages to conclude some large export contracts, which could be a positive driver. Thus, we project total coal production at 792 kt in FY2014, or -50% yoy.

Reduced, but stable, m/m production till the financial year end will be positive from a working capital standpoint, not requiring additional investments in inventories, while would be negative for margins, which are rather thin for business to remain sustainable. Its EBITDA margin was 3.4% in July-September 2013, partially due to elevated costs caused by lower production volumes.