Page 87 - RUSRptAug18

offset the continued grade depletion at Dukat and feedstock depletion at Voro. At Dukat, and despite robust processing volumes, head grades slipped 3-5% y/y (Dukat/Lunnoye plants) and are now 4-9% below the 2P reserves for silver and gold respectively. With 40% of the 2018 output guidance achieved in the first half of 2018, and the second half of 2018 to be supported by the Kyzyl ramp-up and Mayskoye sales recognition, the company is well on track to meet (and potentially slightly outperform) its 2018 guidance.
Novolipetsk Metallurgical Kombinat (NLMK) has reported a strong the second quarter of 2018 trading update . Total steel product sales increased 6% QoQ. The product mix seasonally improved toward finished products, though long steel volumes were under pressure (down 13% QoQ despite higher season in the second quarter of 2018 ) amid slower construction activity and transportation restrictions during the FIFA World Cup 2018. The US segment improved its sales volumes 15% QoQ, helped by import tariffs. Overall, the results met our expectations, with a slight positive surprise coming from US segment volumes. As such we view them as neutral for now, and believe the company will report strong the second quarter of 2018 IFRS (30 July - 3 August). Our 12-month Target Price remains $23/GDR, implying an ETR of 2%; Hold reiterated.
Magnitogorsk Iron and Steel Works (MMK) has reported a strong the second quarter of 2018 trading update . Although total group sales volumes increased only 0.7% QoQ, despite the high season, this was offset by a 1% QoQ increase in the average realised price. The higher price was on the back of a better product mix, as well as higher domestic shipments. Coupled with cheaper raw materials and rouble depreciation, this suggests a 10-15% QoQ pick-up in EBITDA in the second quarter of 2018 , with the inventory selloff bringing strong FCF, which we believe might almost double QoQ, thus promoting higher dividends. We reiterate our 12-month Target Price of $12/GDR for the name. This implies an ETR of 38%, justifying a Buy recommendation.
Alrosa has reported a neutral trading update, with production and sales volumes down y/y due to no carats from Mir mine, and reiterated its FY18 output guidance. The price of gem-quality diamonds was up 25% y/y in the first half of 2018 as the mix continues to recover, while in the second half of 2018 we think the diamond price index might further support y/y growth. We see the reported numbers as supportive for our FY18F earnings estimates. Our unchanged 12-month Target Price of RUB 130 implies an ETR of 43%: Buy reiterated. Production slightly below our estimates, but FY18 guidance intact. Output was down 18% y/y to 8.5mncts, mainly due to no production from the Mir mine this year after the accident in early August 2017. Output also underperformed our estimates 7% due to scheduled maintenance at the Nyurba processing plant and no pick-up in Jubilee grades. However, the company reiterated its FY18 guidance of 36.6mncts. That is based upon output at the Udachny mine almost doubling HoH and a recovery at Nyurba following the processing plant maintenance, which we think is achievable given the ongoing ramp-up at the Udachny mine.
Phosagro output of phosphate rock continued to grow in the second quarter of 2018 , rising 3.3% q/q to 2.5mn tonnes. This puts the the first half of 2018 figure at 5.1mn tonnes, or almost 10mn tonnes if annualized. However, the production of phosphate-based fertilizers slowed down in the second quarter of 2018 , as the company moved the product mix more toward DAP
87 RUSSIA Country Report August 2018 www.intellinews.com