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IN BRIEF
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*** Alexei Mordashov's Severstal boosted net profit to International Financial Reporting Standards (IFRS) 69% year-on-year in the first half of 2008 to $1.94 billion on the back of higher raw material and steel prices and said it expected production and sales to continue to soar in the year as a whole. Severstal also said it was planning a syndicated loan of $1.5 billion-$2.5 billion to develop its North American assets.
*** The Evraz Group posted strong financial results for the first half of 2008 and expectations for the full year, and said it expected to at least match these in 2009 thanks to high steel, iron ore and coal prices and its vertical integration, which minimizes its exposure to price growth for these raw materials. The Russian steel giant's shareholders can also look forward to a healthy dividend for the half. Evraz also closed the sale of some vanadium-related assets of Highveld Steel & Vanadium Ltd to Duferco Investment Partners Inc. this week and said it could increase its stake in Delong Holdings to 75% as the result of an offer if its bid to acquire a controlling 51% stake in the Chinese steel trader and producer is successful.
*** Russia's biggest diamond cutting enterprise, Kristall of Smolensk, this week announced plans to spend at least $25 million on rough diamonds abroad this year, well up on the $3 million it spent on foreign markets in 2007. Kristall is De Beers' sole Russian sight-holder, and has a contract with the world's biggest diamond company until 2012 and it also intends to continue to buy most of its rough from Russian diamond miner Alrosa. Kristall also said it will keep having diamonds cut and polished in Armenia which cannot be cut and polished economically in Russia.
*** Russia intends to invest $2 billion in the development of Priargun Mining and Chemicals Association, the country's biggest uranium miner. Priargun, which celebrated its 40th birthday this week, will receive the funds under the national program to develop the nuclear industry as a key aspect of uranium industry investment policy.
*** The Mechel coal and steel group is lowering prices 15% on scarce coking coal grades in accordance with orders from the Federal Antimonopoly Service (FAS), for the period September 1 to the end of 2008. Mechel has also signed long-term, five-year contracts with its main customers, entering into effect in 2009. Mechel has adjusted contracts to supply these coals to MMK and supposedly NLMK, Mechel's biggest coking coal buyers. Metals industry sources also told Interfax that Mechel had signed coking coal supply contracts for the period 2009-2013 with MMK, Severstal and Evraz Group. One of the sources said the contract prices were pegged to world prices.
*** Leading coalminer Siberian Coal Energy Company (SUEK) is discussing the possibility of placing up to 30% of charter capital in the form of Global Depositary Receipts (GDR) in order to raise $0.5 billion-$1 billion. "Russian law does not allow companies to issue only GDRs, ignoring local stock exchanges, but there are precedents when holding companies registered outside Russia have placed GDRs. That's what [oilfield services company] Integra did," a source said. The GDRs would be issued in the first quarter of 2009, he said. SUEK shareholders are scheduled to examine the issue of supplementary share issue for sale in a private placement on October 6.
*** London-listed Novolipetsk Steel (NLMK) this week denied a report that it is planning to place $1.5 billion-$2 billion in Eurobonds. The company said it is not against using bonds to refinance the $2 billion-bridge loan it is raising, but other means such as syndicated loans and pre-export financing will also be used. A source in banking circles told Interfax NLMK was preparing the issue to partially refinance its acquisition of U.S. pipe maker John Maneely Company (JMC) for $3.53 billion.
*** Interros has been and remains a long-term investor in MMC Norilsk Nickel and intends to preserve its role as key shareholder in the world's biggest nickel and palladium producer, Interros chief Vladimir Potanin said this week when presenting Vladimir Strzhalkovsky, Norilsk Nickel's new CEO, to local managers. Potanin, who chairs Norilsk Nickel's board of directors, said the company "would continue to pursue its strategy of consolidation and increased capitalization."
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Severstal boosts H1 earnings, planning major loan
MOSCOW. (Interfax) - Severstal boosted net profit to International Financial Reporting Standards (IFRS) 69% year-on-year in the first half of 2008 to $1.94 billion on the back of higher raw material and steel prices and said it expected production and sales to continue to soar in the year as a whole.
Severstal also said it was planning a syndicated loan of $1.5 billion-$2.5 billion to develop its North American assets.
Strong H1 results
The first-half results were better than forecasts: analysts told Interfax that they thought Severstal would turn profit of $1.399 billion in the half.
Severstal said its sales revenue grew 36% to $10.547 billion and that earnings before taxes, depreciation and amortization (EBITDA) had jumped 34% to $2.784 billion.
The consensus-forecast was sales revenue of $10.485 billion and EBITDA - $2.673 billion.
Severstal financial highlights in H1 2008 ($ mln):
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The company said it was expecting EBITDA of $5.8 billion-$6.1 billion for the full year.
Severstal plans to sustain this year's level of capex, $2.7 billion-$2.9 billion, in 2009, Sergei Kuznetsov, the Russian steel major's CFO, told reporters.
Production growth
The company also forecast crude steel production would soar 31.4% this year compared with last to 23 million tonnes. Roll production should rise 64.7% to 21.9 million tonnes.
Raw coking coal production should rise 50% to 2.7 million tonnes, however coking coal concentrate production is expected to fall, by 20.7% to 4.6 million tonnes.
Severstal expects 4.3% growth in iron ore concentrate production to 4.9 million tonnes, and 3% growth in iron ore pellet production, to 10.3 million tonnes in the full year.
The company said its North American division was expected to raise steel production 12.3% this year to 13.7 million tonnes.
Roman Deniskin, head of the upstream Severstal Resource division, told reporters that the company expected to produce 5.8 tonnes-6 tonnes of gold this year.
Severstal also expects sales to grow in all segments in the second half.
Severstal edged crude steel production up to 17.5 million tonnes in 2007, from 17.4 million tonnes in 2006. Roll production came to 13.3 million tonnes, coking coal - 1.8 million tonnes, coking coal concentrate - 5.8 million tonnes, iron ore pellets - 10 million tonnes and iron ore concentrate - 4.7 million tonnes.
Severstal raised crude steel production 12% year-on-year in the first half of 2008 to 9 million tonnes. Roll production grew 6% to 7 million tonnes and iron ore pellet production was up 15% to 2.2 million tonnes, however coal production plummeted 54% to 667,000 tonnes.
Syndicated loan
Severstal is planning to raise a syndicated loan of $1.5 billion-$2.5 billion, said Sergei Kuznetsov, the CFO.
"We'll know the exact amount when the [syndication] closes," Kuznetsov said.
Kuznetsov did not say who would be arranging the loan, but he did say the syndicate would consist largely of Western banks.
He said Severstal was not encountering any difficulties at negotiations with banks.
The loan is being raised to develop Severstal's North American companies.
The North American companies have the capacity to produce 12.5 million tonnes of steel, and are targeting 9.7 million tonnes in 2008, Gregory Mason, the director of Severstal International, told reporters. These assets will take a few years to reach full capacity but when they do, their capacity might be augmented by 1.5 million tonnes by adding a second production line at SeverCorr.
Severstal is anticipating annual synergistic effect of $200 million from its North American enterprises by 2010-2011.
Severstal and SteelCorr, set up by six former executives at Birmingham Steel and Nucor, formed SeverCorr in 2005 to build and operate a new, state-of-the-art plant capable of producing 3 million tonnes of steel annually for the automotive industry in the southern United States.
SeverCorr, commissioned towards the end of October last year, is already working at 75% capacity and is due to achieve full capacity to produce 1.5 million tonnes of flat products per year in 2008, Severstal has said. A second 1.5 million tpy stage of the plant should achieve capacity in 2011, the company has said.
Acquisitions and disposals
Severstal is interested in the Asian markets, particularly India, Alexei Mordashov, the Russian steel major's CEO, said in a conference-call.
The company also sees potential in Eastern Europe, Mordashov said.
"We might make some acquisitions in Ukraine if that generates additional value for our shareholders," he said.
Severstal is keen to vertically integrate its North American division, and its acquisition of PBS Coals Corporation is the first stage in that strategy, Mordashov said.
Mordashov owns more than 82% of the London-listed Severstal, which already has assets in Russia, North America, Europe and Ukraine. The free-float is around 18%.
The Severstal Group's acquisition of Italian wire and steel rope producer Redaelli Tecna cost $55 million, Severstal said in its financial statement.
The group's metalware division, Severstal-Metiz, completed the Redaelli Tecna acquisition in the middle of August. It has consolidated all of the Italian company's shares.
Severstal also said the group in January 2008 acquired a 91.57% stake in Russia-based ferroniobium producer OJSC StalMag for $17.6 million.
In January 2008, the Group completed the acquisition of a 100% stake in gold producer Celtic Resources Holdings Plc by acquiring the remaining 13.7% stake in the company for a total consideration of $44 million. Celtic Resources Holdings Plc is a gold producer which operates gold mines in Kazakhstan.
"Management has not yet completed the estimation of fair values of the acquired assets and liabilities and, accordingly, does not currently possess all necessary information to disclose the effect of this acquisition on the Group's financial position or results of operations. Final purchase price allocation is expected to be completed before December 31, 2008," Severstal said.
In April 2008, the Group acquired an additional 9.4% stake in SeverCorr from its former management, and a 34.6% stake in Ukrainian Metalware producer Dneprometiz from third parties for a total consideration of $40 million.
Severstal said in the financial statement that it increased its stake in SeverCorr to 91.8% in August after buying a further 4.1% from former management for $16 million. Severstal owned 85% of the joint venture as of April.
In June 2008, the Group sold its 100% and 40.03% participation in Relco Spzoo and Coimpex Spzoo respectively for a total consideration of EUR12 million ($18 million).
The biggest asset disposal in the half was in April 2008, when the Group sold its 97.9%, 99.46% and 100% participation in the Berezovskaya, Pervomaiskaya and Zhernovskaya-3 coal mines, respectively to ArcelorMittal for a total of $652 million.
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Evraz boosts net profit, dividends, says outlook healthy
MOSCOW. (Interfax) - The Evraz Group posted strong financial results for the first half of 2008 and expectations for the full year, and said it expected to at least match these in 2009 thanks to high steel, iron ore and coal prices and its vertical integration, which minimizes its exposure to price growth for these raw materials. The Russian steel giant's shareholders can also look forward to a healthy dividend for the half.
Profit soars
Evraz said in a statement that it increased net profit 82.1% in the first half of 2008 to $2.043 billion.
Revenue was $10.726 billion (an increase of 78.2% year-on-year) and EBITDA was $3.7 billion (up 80.5%).
The company expects revenue for the full year 2008 at $23.2 billion-$24.6 billion and EBITDA of $8 billion-$8.5 billion. The company closed last year with net profit of $2.323 billion, revenue of $12.808 billion and EBITDA of $4.254 billion.
Steel production will reach 19.8 million tonnes in 2008, 16% more than the 16.333 million tonnes produced in 2007.
Coal production by Evraz is forecast to rise 51% this year to 19.1 million tonnes, including 14.5 million tonnes of coking coal. The company earlier forecast it would mine 15.1 million tonnes of coal, including 10.5 million tonnes coking coal, this year. It produced 12.654 million tonnes in 2007. A recent accident at the No.12 deep mine in the Kemerovo region which resulted in three deaths will only shave 30,000 tonnes off this year's coal production, Evraz co-owner Alexander Frolov said in a conference-call. The mine produced 893,000 tonnes of coal, including 667,000 tonnes of coking coal, in 2007.
The H108 financial results were much better than those forecast by analysts, but the latter said their forecasts were conservative and that they were prepared for the company to surprise them when it unveiled its results.
Evraz said favorable pricing environment, acquisitions and enhanced product mix drove the growth in financial results.
Evraz financial highlights (USD bln):
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Evraz said it had increased its capital expense program for 2008 to $1.5 billion.
Of the total, $400 million will go to modernize production and $1.1 billion to investment projects.
Net debt grew to $9.246 billion in H108, from $6.404 billion in same period of last year. Operating cash flow soared 42.2% to $2.347 billion.
"We don't have any immediate plans to raise funding because we had significant cash flow in the half," Pavel Tatyanin, Evraz senior vice president, said during the conference-call. Tatyanin said the company aimed to keep its debt/EBITDA ratio at the optimal level of 1.5.
Alexander Frolov said capex and operating forecasts had been revised because the company had adjusted its development program to 2018 for coal producer Yuzhkuzbassugol, which is scheduled to increase coking coal production. "We cannot rule out new projects either," said Pavel Tatyanin, adding that the cash flow could be used to generate added value. The company also has access to debt resources in Russia and abroad.
Evraz said in the financial statement that it expected to obtain the necessary regulatory approvals to buy Chinese steel producer and trader Delong Holdings in September. Best Decade, the core shareholder in Delong Holdings, has agreed to extend the deadline for Evraz to close its takeover of Delong until February 18, 2009 because Evraz has not yet obtained clearance from the Chinese regulatory authorities to buy a controlling stake.
Evraz signed a deal in February to buy 51% of Delong Holdings for US$762 million and said it could in time increase that stake to 100% in what will be the Russian steel major's first acquisition in the Asia-Pacific region.
Pavel Tatyanin said the Evraz Group's acquisition of Ukraine-based assets ought to close during the next few weeks, once final regulatory procedures have been completed in Luxembourg. Ukraine's Privat Group agreed to sell iron ore producer Suha Balka, Petrovsky Steel Works, coke producers Bagliikoks and Dniprokoks and Dniprodzerzhinsk Coke and Chemicals Plant to Evraz owner Lanebrook at the end of last year. Evraz estimated the deal would cost $2 billion-$2.2 billion, including around $1 billion cash.
As for rumors that Evraz was planning to merge with Ukrainian steel producer Donbass Industrial Union, the Evraz executives said this company, "a key player on the Ukrainian market," had growth potential, but they did not say whether talks were in progress.
Alexander Frolov said Evraz did not plan to branch out into other sectors. "Our strategy does not involve straying from our core business, and we'll continue to focus only on our existing lines of business," he said.
Pavel Tatyanin said that besides steel and coal, the group had owned vanadium assets, essential for steel production, for the last two years.
Bumper dividend
The board of directors of Evraz Group has recommended a dividend of $8.25 per share ($2.75 per GDR) for the first half of 2008, the company said.
That dividend level would be 72% higher than the $4.8 per share paid for the first half last year.
The ex-dividend date is September 18.
Lanebrook owns about 73% of Evraz. Lanebrook's beneficiaries are Millhouse, the holding company for the assets of billionaire Roman Abramovich and his business partners (50%), on the one hand, and Alexander Abramov and Alexander Frolov (50%), on the other. Ukraine's Privat group owns just under 10% of shares.
Healthy outlook
The Evraz Group plans to sustain its...
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