DTEK coal mining falls 10% in July, importing hard coal

Ukraine’s leading coal and power holding DTEK Energy
(DTEKUA) produced 1.75 mmt of ROM hard steam coal in July (9.6% less yoy),
Concorde Capital calculated based on sector-wide data provided by Interfax-Ukraine.
July output was 56.5 kt on an average daily basis, which is 9.9% less from June
and the holding’s weakest mining result for the last three years. In 7M19, DTEK
Energy mined 13.08 mmt of ROM hard steam coal (on average, 61.7 kt per day), or
2.2% less yoy.

Last week, the company’s CEO told Interfax-Ukraine
that DTEK has contracted imports of over 0.3 mmt of hard steam coal and 0.1 mmt
of anthracite coal. The company expects that its total coal imports will amount
to 1 mmt this year.

Alexander Paraschiy: DTEK’s coal
production indicators looks disturbing as it seems like the holding’s coal
mining will fall 3-4% yoy to perform weaker than we initially expected (a 2%
yoy decrease).

DTEK Energy has not produced anthracite coal since
early 2017, and therefore needs to import it. However, hard steam coal imports
are not necessary.  In 2018, DTEK Energy produced 17.5 mmt of marketable
hard coal, purchased 0.6 mmt of such coal and sold to third parties 2.5 mmt of
such coal.

In 2019, the company will remain self-sufficient in
hard steam coal even if its mining falls by 6% yoy (we expect the decline won’t
be that steep this year). Therefore, DTEK’s hard steam coal imports are not
related to the holding’s internal deficit, but rather rooted in its wish to
bargain on coal trading.

So far, we are keeping our view on DTEKUA bonds as
the most promising instrument in Ukraine’s fixed income universe.