Page 181 - RusRPTApr21

27koz in March), which implies a 19% downside risk to our 1Q21F forecast. We note that while the company has finally started production at the Elginskoye deposit (the new pit, which is substituting for the depleted Albyn), it was unable to offset all of the Albyn depletion, as the ramp-up is apparently proceeding slow. This suggests that the downside risks from a delayed start-up are going to be realised (see our Morning Comment story of 28 December 2020). Further delays in 2Q21 onwards would mean additional risks to our 2021F output forecasts of 142koz for the mine and 391koz for the company. Therefore, we treat the news as negative.
● Steel
Severstal left unchanged its key EBITDA growth target for 2018-23 and provided details about its growth projects in 2021-23 that were not disclosed previously at a capital markets day on March 12.
The plan is still to increase 2023 EBITDA by $2.1 bln compared to 2018 via capex projects, cost optimization and marketing initiatives. Over 2018-20, Severstal achieved total structural EBITDA growth (assuming constant macro parameters) of $880 mln, so it still has to increase its EBITDA by another $1.2 bln by 2023. Half of this growth is guided to come via ongoing investment projects, 22% should come from recently completed projects, and the remaining 29% should come via cost optimization and marketing initiatives.
The targets for mining volume growth were left almost unchanged except for a higher 2023 coal output target (5.9 mtpa versus 5.4 mtpa previously), implying 25% growth versus 2020. The plan to increase steel production to 11.8 mtpa in 2022 (up 4% versus 2020) was unchanged. Severstal is considering relaunching the currently halted Shaft Furnace No. 2 (an EAF) in 2023 or 2025, which would bring its crude steel production to 13 mtpa. The project's capex and EBITDA effects have not yet been guided, though we think both would be small because of the low costs required to relaunch an EAF (less than $50 mln) and the low profitability of EAFs running on scrap in Russia (we think the unit could generate around $20 mln per year at normalized prices). Volume growth (primarily in mining) should contribute $370 mln out of the total $1.2 bln in EBITDA growth.
Severstal also provided more details on its HVA portfolio growth targets (expected to contribute $225 mln in EBITDA), with the main project being a new 1 mtpa wire rod mill that will be complementary to the additional EAF steel volumes. The rest of the EBITDA growth should come from marketing initiatives, the launch of new products (around $270 mln in total) and cost cutting, which should contribute the remaining $370 mln (corresponding to a $20/tonne reduction in slab cash costs).
181 RUSSIA Country Report April 2021 www.intellinews.com