Page 123 - RusRPTNov18

pick-up, but concentrate output lags. The coal division reported strong output volumes due to Raspadskaya open-pit mine and Mezhegey being ramped up. This, however, failed to translate into higher concentrate output, which was almost 15% below our estimates due to the underperformance at Evraz’s processing plant. Despite the strong pick-up in coal output, the company slightly lags its mining volume guidance for 2018 (23.9mnt), in our view.
Russian steel and mining major Evraz of billionaire Roman Abramovich plans to boost capital spending by 1.5-fold in 2019-2022 to $830mn-$990mn annually, the company said on October 19. The company plans four large projects in Russia and North America worth about $1.3bn in total, Reuters said citing the investor day presentation of Evraz. Investors did not welcome the new strategy of the company, with the shares of Evraz in London falling over 5% on the announcement, even despite a pledge to increase the dividends by 64% to $1.2bn for 2018. The CEO of the company Alexander Frolov told investors in London that Evraz plans to invest in producing rails in Russia, as well as to double the output of rails in the US state of Colorado, arguing that it was one of the cases when new steel tariffs in the US could play to company's advantage. "We don't see economic rationale behind expansion on oversaturated steel market on its downward cycle," BCS Global Markets commented on Evraz's new investment plans on October 19.
Severstal has reported a mixed the third quarter of 2018 trading update: despite a healthy pickup in steel output, sales volumes for the third quarter of 2018 were below our expectations. Nevertheless, the data was supportive for our the third quarter of 2018 earnings forecasts, thanks to better prices. The stock has outperformed its peers since July, and we now believe that the stronger dividend outlook has been played out on the market, especially given early signs of steel prices peaking. Steel sales lag production. Steel products sales volumes declined 5% Q/q to 2.71mnt, mainly due to a lower offtake on exports, which coincided with short-term maintenance works at rolling mills. At the same time, crude steel volumes recorded a healthy pick-up Q/q to a new quarterly record of 3.06mnt, reflecting the absence of blast furnace maintenance.
Norilsk Nickel has reported a strong the third quarter of 2018 trading update (with nickel and PGM output almost flat y/y but 25% y/y growth in copper production) and confirmed its FY18 production guidance. The latter, though, is mostly driven by the Chita ramp-up and Rostech purchased concentrate processing. Nevertheless, bankers now see the FY18 copper and PGM output guidance as conservative, with underlying metals production likely arriving at the high end of the guided range, or even exceeding it. Our 12-month Target Price of $22.80/DR implies a 53% ETR; Buy reiterated. Own feed Nickel and PGM output up slightly y/y. The company reported a 1% y/y decline in nickel output y/y on the reduction in low-margin processing of third party feed, while production from Russian feed gained 1% y/y. This indicates that the reconfiguration of the downstream is proceeding well, with output reaching pre-reconfiguration levels. PGM output was also slightly higher, though mostly on the processing of Rostech purchased concentrate (included into own feed). Copper output rises on Chita ramp-up and Rostech concentrate processing. Copper output gained 25% y/y and 3% Q/q on the back of Chita ramping up (it added 4kt of output Q/q and 8kt y/y) and largely on Rostech concentrate processing. 2018 guidance for copper and PGM looks conservative. While nickel output is on track to meet the guidance, we see a high chance that in FY18 copper and PGM production might arrive at, or even
123 RUSSIA Country Report November 2018 www.intellinews.com