Protests spark at Metinvest’s key coking coal mine

Administrative buildings along with some divisions of the coal mining company Krasnodonugol, a Metinvest (METINV) subsidiary located in a “hot spot” Luhansk oblast of Ukraine, were blocked on Apr. 23 by a group of 300 men, Interfax reported. Before the blocking, the group participated in a protest in downtown, supporting a referendum for the federalization of Ukraine.  

Protesters presented a long list of demands to the company’s management, including an increase of salary, and inspired the miners of Krasnodon to participate in protests. According to company management, no more than 3% of Krasnodon’s workers were involved, and the mining company continued operations, but access to some working places was blocked. 

Roman Topolyuk:  Though the mine did not stop operations, the potential threat of production disruptions at Krasnodon is a negative development for Metinvest, as the mining company is the holding’s key supplier of coking coal, sourcing up to 45% of its needs. Should Metinvest fully stop Krasnodon, its annual negative effect on EBITDA would be USD 140 mln. While we do not believe the full stoppage of the mine is realistic, we admit that a risk exists that supplies of coking coal and coke for Metinvest plants will be interrupted. 

This is the first attack on a facility belonging to Ukraine’s richest man, Rinat Akhmetov. The Krasnodon case is a negative precedent – before that, the common belief was that Akhmetov’s assets were untouchable. Now we cannot rule out similar developments at other assets of Akhmetov – there are plenty of them in the unstable Donestk and Luhansk regions. His Metinvest holding operates coal mines, and coke plants there as well as a majority of the steel mills (actually, everything except iron ore plants which and one coking coal mine). Although the companies located in the two hot regions generated about 15% of Metinvest’s total EBITDA in 2013, we estimate that they are most important elements of the Metinvest vertical integrated chain. 

Akhmetov’s other holding, DTEK (DTEKUA) operates a dozen objects in the two risky regions as well (coal mines, power plants, power DisCos). In the 2013, we estimate that these two regions brought in 45% of DTEK’s total EBITDA.