22 November 2011
Ukraine’s Energy Ministry plans to announce the winners of 49-year concession agreements for the nation’s two largest state-owned coal mines, Sverdlovantracit and Rovenkiantracit, on November 25, Interfax reported yesterday. Two bids were submitted by companies related to DTEK (DTEKUA) and Donetskstal. The two mines are together produced 12.4 mln mt of anthracite (steam) coal in 2010, 24% of Ukraine’s steam coal. The aggregate value of the concession rights is UAH 4.2 bln or USD 43 per ton of coal mined in 2010. Alexander Paraschiy: The concession (a euphemism of sorts for privatization) represents a real bargain for the bidders. For comparison, WSE-listed Ukrainian mines are currently trading at USD 111-212 per ton of coal sold and USD 327-438 per ton of coal mined in 2010. We believe DTEK has the best chance to win the concession tender for both mines as it already has joint private/state investment projects at the mines and is politically closer to government officials. If DTEK wins the tender, it would control 58% of domestic steam coal production and 66% of anthracite coal output (the primary fuel for half of Ukraine’s power plants). We believe the cheap acquisition of the two large profitable mines might reinvigorate interest in DTEK’s Eurobonds; DTEKUA is currently trading 110 bps over the sovereign yield curve.