Metinvest affiliate Pokrovske Coal to invest USD 100 mln in 2019

Pokrovske Coal assets – in which Metinvest (METINV),
Ukraine’s largest steelmaker, owns 24.99% – plan to
invest USD 100 mln in 2019, Interfax-Ukraine reported on June 25. The news
agency cited Ildar Saleev, the CEO of private joint stock company (PrJSC) Donetsksteel,
which is a part of the assets.

Concorde Capital estimates that this amount of CapEx
will be a 50% increase from the 2018 investments (USD 67 mln, of which PrJSC
Donetsksteel invested USD 1 mln and PrJSC Pokrovske Coal – USD 66 mln).

Saleev also said that Pokrovske Coal assets plan to
implement certain projects in the next five years that will allow for doubling
its production volumes. Recall, in 2018 the assets mined 3.98 mmt of raw coal, down 9%
yoy, and produced 2.30 mmt of coking coal concentrate,
down 10% yoy.

Recall, Pokrovske Coal said in its 2018 annual report
that it plans to boost coal production 42% yoy
to 5.63 mmt in 2019.

Dmytro Khoroshun: This is the
first time we heard of a timeline for doubling production volume, and the
five-year term is longer than we previously expected. In order to start
repaying its heavy debt (USD 1.25
bln at the end of 2018), Pokrovske Coal assets need to boost their production
volumes as fast as possible.

The doubling of the volumes looks realistic: Pokrovske
Coal assets’ coal concentrate production is limited by the capacity of
Svyato-Varvarynska LLC, the enrichment factory, which is roughly 7.9 mmt of raw
coal per year, or about 4.5 mmt of coal concentrate per year. For example, in
2013 the factory processed as much as 8.6 mmt per year (slightly more than the
announced capacity, all mined by PrJSC Pokrovske Coal) and produced 4.8 mmt of
coal concentrate – more than double the 2018 volume.

We maintain our bullish view on METINV bonds.