Russian coal miner SUEK has secured a US$1 billion pre-export financing agreement with a group of international lenders as the firm looks to continue its ongoing expansion into coal-hungry Asia.
The company announced on May 17 that the loan agreement had a duration of five years and was secured against SUEK’s future export revenues. SUEK said the facility, which carries an option to rise to US$1.2 billion, will be used for general corporate purposes and to refinance existing debt.
A syndicate of 19 domestic and international banks participated in the loan agreement, including co-ordinator Deutsche Bank. According to an unidentified banker quoted by Reuters last week, the pre-export deal uses an accordion feature to allow Russian lenders to join the second loan tranche, speeding up the deal’s approval by all parties involved.
SUEK’s most recent venture into the international debt market was in February 2016, when it secured a US$1 billion pre-export financing deal with a five-year tranche and a seven-year tranche. The company’s total debt at the close of last year stood at US$3.3 billion, of which around 80% is secured by its international revenue.
“We at SUEK are very pleased with the results of this syndication and how our achievements, plans and strategy are perceived by our lending banks,” CFO Nikolay Pilipenko said in a statement last week. “The company remains fully committed to deliver on its goals, whether financial, operational, or industrial and environmental safety, as well as social responsibility,” he added.
Russia’s largest coal miner by volume has pledged to continue to expand production at its 14 strip mines and 12 deep mines in Siberia and the Russian Far East. Last year, the company registered record coal output of 105.4 million tonnes, up from 97.8 million tonnes in 2015. SUEK said that production was anticipated to climb further in 2017, although output in the first quarter of 2017 is down by 1% on the year at 28.4 million tonnes. The company said that the increase would come from development of the Magistralny site at the flagship Kuzbass field as well as the Pravoberezhny, Severnaya and Bureinsky assets in Khabarovsk. This year, however, SUEK will also decommission the November 7 and Vostochnoe mines owing to resource depletion.
The greater production numbers have been squarely targeted at foreign buyers, particularly in the Asia-Pacific region, where total imports rose by 4% on the year in 2016. SUEK’s international sales climbed by 11% year on year in 2016 but exports to South Korea, Japan, China and Taiwan grew by 16%. The rise follows a 6% decline in European as well as domestic sales, which the company linked to higher water levels in Siberia and the Russian Far East, supporting higher hydropower output and denting demand for coal.
The Russian firm’s high-quality thermal coal, which exceeds a heat content of 6,100 kcal per kilogramme, can be easily moved to Asian buyers from SUEK’s Khabarovsk and Primorye mines in Russia’s Far East. SUEK has committed to upgrading its main Asian export gateway in the region – the bulk terminal at the port of Vanino. The company is set to complete the main stage of building work at the facility later this year, which could increase shipments from 19.5 million tonnes in 2016 to 21 million tonnes in the second half of 2017.
Asia’s demand for higher quality coal is also driving SUEK’s plans to invest in its coal-washing capabilities, which improves coal quality. Washing rose by 12% on the year in 2016, following investment in upgrades and expanding throughput at its nine washing plants. This year, SUEK intends to add a new washing plant to its Kotinskaya mine in the substantial Kuznetsk Basin of southern Siberia. The company also aims to expand the washing plant at the Tugnuisky opencast mine, which lies in the mountainous Buryatia region of eastern Siberia.
The Asia-Pacific market will grow in importance for Russian coal miners as European demand wanes. The EU has set ambitious targets to curb its greenhouse gas (GHG) emissions, and reducing coal’s share in power generation plays a key role in this strategy. But even in Asia, the outlook for coal imports is far from certain. China is replacing coal with gas in its power sector as means of containing pollution, levels while India is ramping up domestic production. For companies like SUEK, these are key issues to consider when mapping out their long-term strategies.