DTEK anthracite mining in Ukraine nearly stops in June

Ukraine’s leading coal & power holding DTEK Energy (DTEKUA) mined 12.85 mmt of coal in Ukraine in 1H16, which is a 1% yoy drop, Concorde Capital estimated based on preliminary data reported by Interfax-Ukraine on July 5. Its mining of hard steam coal decreased 14% yoy to 9.73 mmt, while mining of anthracite coal on the occupied territories of Ukraine jumped 83% yoy to 3.12 mmt. Total production of steam coal by all Ukrainian mines decreased 5% yoy to 14.62 mmt in 1H16, with DTEK’s market share increased to 88% from 84% a year ago.

The provided data indicates DTEK suffered a 24% yoy decline in coal production to 1.79 mmt in June. In particular, its mining of anthracite coal nearly stopped, reaching only a 0.095 mmt result (-76% yoy and -85% m/m). These are the worst monthly results of DTEK’s anthracite mines since the occupation started in the summer of 2014. Its mining of hard steam coal decreased 12% yoy to 1.69 mmt in June.

Based on our calculations, DTEK coal mining in Ukraine dropped 19% to 1.76 mmt in May, mainly due to reduced mining of hard steam coal at its flagship Pavlohradvuhillia (-38% yoy to 1.00 mmt). In June, the mine boosted coal production to 1.54 mmt, which is still -6% yoy.

Alexander Paraschiy: While DTEK’s first-half result is broadly in line with our vision that its total coal mining in Ukraine in 2016 will be flat yoy, its performance in May – and especially in June – looks rather worrisome. The plunge in anthracite coal in June (at the three mines located in occupied Donbas) is explained by the halted railway connection with occupied territories, which seems to have been restored since late June. That allows us to expect a recovery of anthracite coal mining in July. However, the risks have intensified that DTEK will reduce its total coal production this year. This is due to three factors: a lack of stability on the front lines of Donbas, DTEK’s intention to prove to the government that Ukraine suffers from a coal deficit and needs to import it at a high price, and reported interruptions in power supply in the part of the occupied Luhansk region where some of DTEK’s mines are located. Nevertheless, we are keeping our neutral view on DTEK Energy’s Eurobonds.