Metinvest to invest USD 150 mln into casting machine

Ukraine’s largest steelmaker Metinvest (METINV) announced on Sept. 6 that its subsidiary Ilyich Steel singed a contract with equipment producer Primetals Technologies Austria GmbH for the construction of a 2.5 mmt steel continious casting machine worth USD 150 mln. The project will enable Ilyich Steel to increase slab production 30% to 4 mmt, as well as reduce production costs because of lower consumption of hot iron, limestone and ferroalloys, the company said in a press release. Construction will begin in September 2016, with its launch scheduled for 2018.

Roman Topolyuk: Metinvest hasn’t yet disclosed the exact annual CapEx waterfall for the project, but we anticipate that it might not cause excessive pressure on its free cash flow, as other significant investment projects (including a deep quary conveyor and crusher system at Northern Iron Ore) are nearing completion in 2017. Once commissioned, the new steel casting machine will enable Illyich Steel to produce hot-rolled coil of a higher quality, with a higher selling price (+USD 10/t) and lower production costs. The infrastructure in war-torn Donbas – which needs to be able to support transport of iron ore supplies for steel production of 4 mmt at Ilyich Steel – is still a concern, though the state railway company may conclude its debottlenecking project by 2018, as we understand from the company’s public announcements.

Our rough estimates indicate the project has positive NPV. We reiterate our positive view on Metinvest Eurobonds.