DTEK boosts coal mining 20% in February, gains better power rate

DTEK Energy (DTEKUA) mined 2.87 mmt of coal in February, a 20% yoy increase, according to Concorde Capital calculations based on sector-wide data provided by Interfax-Ukraine on March 6. In particular, DTEK boosted mining of anthracite coal on the occupied territory of Donbas by 48% yoy to 0.97 mmt. It improved mining of hard steam coal on the non-occupied territory of Ukraine by 10% yoy to 1.90 mmt. Compared to January, DTEK increased average daily coal mining by 13%, including 18% m/m growth for anthracite coal and 11% m/m growth for hard steam coal.

Ukraine’s total mining of steam coal rose 7% yoy in February to 3.23 mmt, with growth being solely contributed by DTEK’s mines. The share of DTEK in total Ukraine’s steam coal production climbed to 89% in February from 80% a year before.

In 2M17, DTEK’s coal mining increased 27% yoy to 5.68 mmt, with anthracite coal swelling 69% yoy growth and hard steam coal improving 13% yoy.

Alexander Paraschiy: Given that railway routes connecting the occupied territories of Donbas to the Ukrainian mainland have been blocked since Feb. 11, DTEK is unlikely to capitalize soon on its strong anthracite coal results. So far, the holding is able to supply anthracite to only one of its three power plants designed to burn this fuel – the Luhanska Power Plant. The plant consumes no more than 0.2 mmt of coal per month, or about a quarter of DTEK’s sellable coal production on the occupied territory.

Theoretically, DTEK can sell the coal from the occupied districts to Russia or other countries. However, the holding will most likely deny any such opportunity officially. All this means that DTEK’s mines on the occupied territories are swelling their stockpiles, with little understanding on when they can de-stock. It would be positive for business if the trade blockade of the occupied regions eased some time in March, but we see no feasible scenario of how that may happen.

As encouraging news for DTEK Energy, Ukraine’s power sector dispatcher Ukrenergo reported average prices of electricity sold by all Ukrainian thermal power plants increased in Feb. 21-28 to an average rate of UAH 1,829/MWh from an average of UAH 1,433/MWh in Feb. 1-20, and from an average of UAH 1,400/MWh in January. It’s a positive development, though we do not understand neither the reason of such an increase nor its sustainability.

All in all, we remain neutral on DTEKUA bonds, now even less cautiously than before.