Russia’s top coal miner SUEK has unveiled plans to ramp up production by 18% within the next five years, with an IPO of its stock now back on the agenda.
The company, owned by Russian businessman Andrey Melnichenko, is banking on a surge in coal demand in Asia to support its growth plans. It has secured billions of dollars in pre-export financing over the last few years, which it has invested in expanding production.
“In the coming four to five years, we are going to invest something like US$3 billion in further developing infrastructure,” the group’s chairman, Alexander Landia, told Reuters last week
SUEK lifted 107.8 million tonnes of coal in 2017, up 2.3% year on year. The bulk, around 56.4 million tonnes, was sold overseas. According to Landia, SUEK aims to crank up production to 130 million tpy by 2022, up from a target of 110 million tonnes this year.
The producer already sells 30% of its coal to Asia, but is hoping to capture a larger share of the market in the years to come. Besides increased investments in mining, it also intends to expand the capacity of its export infrastructure, including the Vanino bulk terminal in Russia’s Far East. It recently presented plans to increase the terminal’s handling capability from 24 million tpy to 40 million tpy by adding a new berth, among other upgrades.
SUEK is also investing more in its coal-washing capacity to meet Asian demand for higher quality coal. The company aims to raise the share of coal that it washes from 40% to 80%, according to Landia.
Russia has set a goal of doubling its coal exports to Asia by 2025, with a focus on higher sales to China. Energy Minister Alexander Novak forecast in August that 420 million tonnes of coal would be produced this year, breaking past Soviet records. By 2030, he estimated that output could reach 590 million tonnes. Exports, currently at over 200 million tonnes, are poised for similar growth.
Landia also indicated that SUEK was revisiting the option of holding an IPO. The company had prepared for an offering in London in 2011, but the plan was shelved because of weak market conditions. Since then, Russian IPOs have been few and far between, owing to EU and US sanctions imposed after Russia’s annexation of Crimea in 2014.
Undeterred, Landia said while SUEK had not drawn up a specific plan for a new offering, it was readying itself for the right moment.
“Both public debt and public equity markets would be interesting for us,” Landia told Reuters. “That’s our plan, be prepared. Because the market is quite volatile … If there will be an attractive opportunity, we will be seriously looking at that,” he said.
SUEK merged in August with Melnichenko’s power business, Siberian Generating Co. (SGC), the owner of 10,900 MW of electrical capacity and 23,900 Gcal per hour of thermal power in Siberia. Many of SGCs stations run on coal from SUEK’s nearby mines. Explaining the move, company officials said it would help improve SUEK’s access to capital markets. Interestingly, Melnichenko had split the two companies up in 2011 in preparation for the previous listing.
SUEK turned a net profit of US$657 million in 2017, up 110% year on year. Revenues climbed 40% to US$5.7 billion, while operational profits rose by 80% to US$1.08 billion. EBITDA increased by 50% to US$1.5 billion, and the company’s net debt-to-EBITDA ratio fell to 2.0 from 2.9 in 2016.