Page 120 - RusRPTDec18

solid dividend payment, leverage would only rise from 0.4x in 2018 to 0.96x by 2021," the bank estimates. "That would still allow for a 100% payout ratio under the dividend policy and be far below the 1.5x long-term [leverage] target," VTB believes. In October Severstal reported third-quarter IFRS financials, with 9% quarter-on-quarter revenue decline to $2.1bn, 12% q/q Ebitda decrease to $768mn, and net profit down by 18% q/q to $455mn. The revenues and earnings came largely in line with consensus expectations, while bottom line was 11% below the consensus on non-operational losses. At the same time the company managed to contain the free cash flow decline at 20% q/q, keeping the FCF at $481mn in the third quarter, or 4% above expectations on lower capex and resulting working capital release.
Russia's largest coal producer SUEK is considering an IPO and plans to boost its output by 18% or 20mn tonnes by 2020, the head of the company Alexander Landia said in November 7 interview to Reuters. The potentially headline-making IPO ambitious are still vague, however, as the company is interested in both "public debt and public equity", with no specific timing in place prepared to make a public offering move "when the time is right". First reports of SUEK's interest in an IPO appeared in 2011. A number of blue chip and mid-cap IPO have been postponed in 2018 due to escalating sanction risks, with the latest pending IPO call being that of petrochemical major Sibur. SUEK is world's largest coal exporter after Glencore and BHP Billiton, and is controlled by businessman Andrey Melnichenko. The company is one of the 14 non-oil and gas industrial majors that have recently been summoned by Kremlin and the government to participate in state-driven infrastructure investment. But the company is also looking to benefit from state support, as it aligns its growing output plans with the state focus on boosting coal output and exports by 2025. SUEK now plans to invest $3bn in infrastructure and bump output from 110mn to 130 million tonnes by 2022, Landia told Reuters. Company produced 108mn tonnes in 2017, out of which 56.4mn tonnes were exported. The share of "clean coal" is expected to rise from 40% to 60%. The main target for increased exports is the Asian market, which already accounts for 30% of SUEK's exports. However, many questions remain: how will the extra coal export will be transported and to whom. The ambitious coal exports plans on the state level are contingent on Russian Railways increasing its capacity for rail transportation of coal to 180mn tonnes annually by 2024.
Polyus Gold has published slightly positive the third quarter of 2018 earnings thanks to lower costs and capex. Natalka reported higher costs during the ramp-up phase, and we think the mine is on track to remain at around $600/oz TCC in the long run. Polyus trades at an undemanding 2019F EV/EBITDA of 5.3x and P/NAV of 0.9x, 23-42% discounts to quality gold peers. BCS unchanged 12-month Target Price of $52 implies a 70% ETR: Buy reiterated. Better total cash cost performance at brownfields. EBITDA of $534mn largely met consensus and our estimates. At the same time, the company performed better than expected on total cash costs: $345/oz was reported (4% below estimates), flat Q/q despite higher production of high cost alluvials and down 9% y/y. Higher volumes of antimony sold at Olimpiada and better cost performance of Kuranakh heap leach contributed to overall positive result. Natalka above estimates, but cost target achievable after ramp-up. Natalka reported TCC of $685/oz (AISC of $1,143/oz), which exceeds estimates, but this largely reflects the ramp-up stage. Taking into account the mill rotor replacement and scheduled maintenance in the fourth quarter of 2018, bankers think TCC might stay little changed Q/q. However, AISC is likely to fall Q/q given higher production (to dilute fixed SG&A costs and maintenance capex). The estimate is only 15% above stable run rate of
120 RUSSIA Country Report December 2018 www.intellinews.com