South Kuzbass | 28 March 2007 г. | 11:04

Net income of one of Russia’s largest coal makers South

Net income of one of Russia’s largest coal makers South Kuzbass, part of Mechel Group, was cut more than half to $28.9 mnl in 2006. The company considers the main reason for such a fall in net income has become cancellation of the coal maker’s shares redeemed at shareholders’ request due to reorganization. The exact number of shares redeemed as part of the restructuring and their price are to be announced.
The meaning of restructuring is to unite all the coal making enterprises (around 10 assets) into South Kuzbass and switch them to a single share.
Although net income dipped in 2006, a significant rise in the company’s financials indices from now on is expected. First, South Kuzbass has been ramping up coal output on an annual basis and according to its long term plans, the output will reach 25 mln tn in 3-4 years, (as compared to the current 17 mln tn).
Second, analysts expect the company to become a profit consolidation center, since South Kuzbass requires permanent investments. It’s noteworthy that the company’s income will be spent on carrying out of the coal maker’s investment program, since the limit for borrowed resources, debt/EBITDA, exceeded the permissible limit of 3.5.
Third, South Kuzbass produces both coking and thermal coal optimizing export supplies of both as compared to domestic demand. In 2007, these measures (reducing exports of coking coal and increasing exports of power station coal) will add nearly 5-7% to the South Kuzbass’ margins.
Finally, the price trend of the coking coal market has improved slightly in 2007, while thermal coal prices are still rising both on domestic and foreign markets.

Source: Antanta Capital
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