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Jul 13, 2012

DTEK buys Russian coal mines

Energy in East Europe

DTEK, Ukraine’s largest privately-owned vertically- integrated energy group, announced July 2 the acquisition of Russian anthracite producer Rostovsky Anthracite LLC, marking its first acquisition of coal assets outside Ukraine. The value of the deal was not disclosed. The deal for Rostovsky Anthracite, which owns three mines as well as a coal processing plant in the southwestern region of Rostov, bordering Ukraine, will allow DTEK to produce higher quality coal for its domestic thermal power plants but also allow it to increase its coal exports to EU markets, the company said in a statement. Rostovsky Anthracite owns 100% of the Obukhovskaya and Don-Anthracite (Dalnyaya mine) mining corporations and through Don-Anthracite owns 66.67% in Sulinanthracite, which owns a mothballed mine. The mines have estimated combined commercial reserves of 136 million tonnes and last year produced nearly 0.5 million tonnes.

DTEK said that it plans to increase output up to 2 million tonnes per year. Rostovsky Anthracite’s reserves and production is small compared to DTEK’s combined reserves of 1.2 billion tonnes and annual production of 37 million tonnes but the significance of the deal is not in the quantity of reserves but the quality of the coal. DTEK explained that it intends to mix the high-sulfur anthracite produced at its Sverdlovanthracite and Rovenkyanthracite mines with that of the low-sulfur coal from the Obukhovskaya and Dalnyaya mines, operated by Rostovsky Anthracite, to ensure the export quality of its coal in line with EU sulfur content standards of less than 1%. As a result “Ukraine will be able to make up for the shortage of anthracite in Europe, caused by mine closures in England and Germany, supplying up to 2.5 million tonnes of anthracite annually”, it said. Coal exports to Europe will provide a stable stream of hard currency sales, which will enable DTEK to continue servicing its debts without relying on the domestic foreign currency market, Dennis Sakva of Kiev-based brokerage Dragon Capital, said in a July 3 research note. DTEK added that lower sulfur content in the company’s overall coal portfolio would also improve the outlook for domestic coal consumption, particularly, in view of stricter emission and environmental requirements.

“The acquisition will expand DTEK’s resource base and improve the quality of the coal supplied to Ukrainian thermal power plants,” commented Maxim Timchenko, DTEK’s CEO in the statement. “This will help prevent fuel shortage in winter. We will be able to enhance the efficiency of electricity generation and significantly reduce emissions.” “We find the news very positive as the acquisitions will support the company’s export operations and logistics, while operating costs should be comparable to those of DTEK’s Ukrainian subsidiaries as Rostov is adjacent to the Ukrainian border,” Sakva commented. DTEK is a key player in the Ukrainian coal industry. It owns and operates a total of 27 mines and eleven coal preparation plants. Much of its output is supplied to its own power plants but growing volumes are now also exported to Europe, Asia, South and North America.

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