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*** Alisher Usmanov's Metalloinvest holding is slashing iron ore production 65% but not lowering steel production, the holding's general director has said. He said the crisis has affected everybody and that the holding's iron ore producers Lebedinsky Mining & Processing and Mikhailovsky Mining & Processing will be working at 35% of their capacity in November-December, but that the company's anti-crisis program does not involve cutting output at Urals Steel and the Oskol Electrometallurgical Plant. Metalloinvest now expects its full-year 2008 sales revenue to be a little lower than targeted, he said, without elaborating. However, the company does not intend to shelve planned projects. The completion of the 267-billion ruble investment program will likely be delayed until 2018. Also, Sergei Chemezov, head of the state Russian Technologies corporation, which will partner Metalloinvest in the Udokan project, has said that the consortium might not be able to pay for the license to the field by the end of the year, as Usmanov had earlier promised. Nevertheless the holding company has formed an operating company called LLC Baikal Mining Company to develop the giant Udokan copper deposit.
*** Severstal boosted net profit and sales to International Financial Reporting Standards (IFRS) in January-September but cut EBITDA and capex forecasts for the full year and said it was already slashing output at its Russia-based facilities due to the drop in demand for steel. Severstal boosted net profit 140% year-on-year in January-September to $3.24 billion, Severstal said in the IFRS statement. Severstal also boosted net profit to Russian Accounting Standards (RAS) 35% year-on-year in January-September to 45.117 billion rubles, the company said. Sales revenue grew 39% to 203.277 billion rubles. The company also said it was now forecasting EBITDA of $5.1 billion-$5.3 billion for the full year - it had earlier said $5.8 billion-$6.1 billion - and was lowering its capex forecast by 20%. Severstal said the bulk of the planned $8 billion investment program for 2009-2011 had been deferred until market visibility and conditions improve. Severstal has also lowered its steel production forecast for 2008 to 19.7 million tonnes, down 14% from the previous forecast of 23 million tonnes. The company also put its share buyback on hold due to the financial markets situation, but it considering buying back its bonds from the markets.
*** MMC Norilsk Nickel (RTS: GMKN) expects net profit to plummet 75% in 2009, Vladimir Strzhalkovsky, the company's general director, told reporters. Strzhalkovsky did not say what profit was expected in 2008, but he said tax returns were expected to fall in 2009. Net profit to Russian Accounting Standards (RAS) plummeted 94.7% year-on-year in the first half of 2008 to 4.095 billion rubles and sales revenue fell 18% to 124.262 billion rubles owing to a revaluation of long-term financial assets. Strzhalkovsky added that although Norilsk will reduce investment in 2009 but will maintain nickel output in Russia at the 2008 level. However, Norilsk will trim production capacity outside Russia. Strzhalkovsky also revealed that Norilsk will not pay dividends for the full year 2008. Elsewhere, MMC Norilsk Nickel closed January-September 2008 with net losses of 52.2 billion rubles to Russian Accounting Standards (RAS) due to lower sales caused by a drop in metal prices and the dollar's exchange rate against the ruble. Also, Norilsk spent 26.526 billion rubles to buy back 4,301,360 or 2.25% of its own shares before a court ruling froze the buyback.
*** Severstal, TMK and Evraz Group have applied to banks for financial support. TMK and Evraz Group have already received loans, but Severstal is still in talks with VEB. The Vedomosti newspaper has reported that a fourth, Mechel, has also turned to VEB for financial support. Severstal is discussing a loan with VEB to refinance $325 million in Eurobonds, Severstal's CFO said. Severstal needs to pay off 75% or $244 million of the bonds in February, 2009, he said. Russian pipe producer TMK has attracted some $300 million-$400 million from banks, including from VTB Bank, to refinance short-term debt and plans to raise another $600 million in 2009 to refinance a bridge loan, the company's general director for strategy and development said. Meanwhile, VTB Bank has provided 10 billion rubles in financing to companies affiliated with the Evraz Group, VTB said. VTB provided 5 billion rubles each to Nizhny Tagil Iron Steel Works and West Siberian Iron & Steel Plant (ZSMK).
*** Polyus Gold has said it's optimistic about gold prices and the prospects for its sales revenue during the crisis period. Investors usually turn to gold during a crisis of confidence and financial turbulence. So we are optimistic about gold prices in the short and medium terms and, consequently, about our revenue, the company's PR manager said. The company also expects the cost of construction materials and contractors' services to fall, meaning it will be cheaper to build new facilities. "Oil products and chemicals should also fall in price and our on-going projects will become more cost-efficient. We don't think it will take as long to assemble equipment, and we think equipment prices will come down due to reduced demand. Meanwhile, Polyus Gold confirmed on November 17 that it had been cleared by Kazakhstan's authorities to take over Kazakh gold producer KazakhGold.
*** The steel market could start to recover in the middle of next year, said Viktor Rashnikov, board chairman at Magnitogorsk Iron & Steel Works. It's very hard to forecast anything in today's situation. But I think there'll be some sort of revival in the second quarter of next year, and the steel market might start to recover in the summer. Russia's economy today is quite unlike the one we had ten years ago and there's no reason for it to freeze up for long, Rashnikov said. As for the situation at MMK itself, Rashnikov said the company had endured more difficult times.
*** Russia's international reserves shrank by an all-time high of $72.2 billion, or 13%, on October 2008 to $484.59 billion, the Central Bank said. This marks the third month in a row that Russia's reserves have declined. The October drop is 44.4% higher than the decline seen in August-September, when the reserves fell by $39.8 billion.
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Metalloinvest slashes iron ore production, not lowering steel
NOVOTROITSK. (Interfax) - Alisher Usmanov's Metalloinvest holding is slashing iron ore production 65% but not lowering steel production, Maxim Gubiyev, the holding's general director, told a press conference in Novotroitsk, Orenburg region on November 20.
Crisis affects mines
"The crisis has affected everybody," he said.
The holding's iron ore producers Lebedinsky Mining & Processing and Mikhailovsky Mining & Processing will be working at 35% of their capacity in November-December, he said.
But "our anti-crisis program does not involve cutting output at [steel producers] Urals Steel and Oskol Electrometallurgical Plant," he said.
However production at the two steel mills did fall slightly for a period of two or three weeks, he said.
Lower sales
Metalloinvest now expects its full-year 2008 sales revenue to be a little lower than targeted, he said, without elaborating.
"Those [original] profits and margins will not happen," he said.
Gubiyev did not say what the new forecast was, because the market was fairly volatile. They will be lower, but not drastically so, he said.
It was earlier expected that sales revenue for the year would be $11 billion and EBITDA - $5.2 billion.
Metalloinvest has halted shipments to some consumers owing to debts, Gubiyev said, without specifying which customers. He said prices for its products had fallen more than two-thirds because do a drop in demand.
"We're having problems with sales and obtaining cash from customers," he said.
The holding's receivables currently stand at 15.4 billion rubles, with 10 billion rubles of it past-due.
Metalloinvest has long-term contracts to supply ore to Magnitogorsk Iron & Steel Works (MMK), the Tulachermet iron works and Ukraine's Ilich Iron & Steel Works. It also ships ore to steel mills in Eastern and Central Europe.
The Oskol plant ships steel to Ford, Volkswagen and General Motors and Russian automobile plants Avtovaz, Kamaz, Gaz and Ural.
In addition, Metalloinvest supplies hot-briquette iron (HBI) to Hyundai Steel and Corus and feedstock (strips) to pipe producer CHTPZ.
Projects to go ahead
The holding could extend the time-frame and volume of funding for investment projects, but it does not intend to shelve planned projects, he said.
It is thought at this stage that the completion of the 267-billion ruble investment program will be delayed until 2018. The company earlier planned to deliver the program between 2009 and 2012.
Gubiyev said Metalloinvest did not intend to borrow for its investment program before the end of the year. "The company is not in serious talks regarding investment credits with banks," he said, adding that the company was borrowing in order to pay off current debt.
Metalloinvest's net debt is currently $5 billion, he said.
Udokan license
Gubiyev also said the holding had paid 4.5 billion rubles of the fee for the license to the giant Udokan copper deposit that it won at a tender in September, and did not plan to reschedule the project.
However he said the financial and economic projections had altered due to the drop in copper prices.
Alisher Usmanov said at a recent meeting with Anatoly Ledovskikh, the head of the Russian Federal Subsurface Resources Agency (Rosnedra), that Metalloinvest was prepared to pay the whole 15 billion rubles license fee for Udokan by the end of the year.
Ledovskikh said Usmanov's company had not yet signed any license documents.
The license was submitted to MGOK, which won the tender, for signing in October, and was then due to be registered.
Ledovskikh has said the law did not stipulate a precise deadline for signing license agreements. The company will have 30 days to pay for the license once it had been registered.
But Sergei Chemezov, head of the state Russian Technologies (Rostekhnologii) corporation, which will partner Metalloinvest in the Udokan project, told Interfax on November 20 that the consortium might not be able to pay for the license to the field by the end of the year.
"We'll probably pay for the license at the start of next year, we won't manage it by the end of this year. Firstly we need to gather the money together, and secondly, there are some organizational aspects," Chemezov said.
Chemezov said Metalloinvest and Rostekhnologii were talking to banks about a loan to pay for the license. He did not name the banks, but did say "more than one bank is involved."
He said the partners did not for the time being plan to scale the Udokan investment program down or delay the construction of a mining and metallurgical plant at the deposit, due to begin in 2010.
"We expect not to have to reduce investment or defer construction," Chemezov said.
Planned investment in the Udokan field is in excess of 100 billion rubles.
Metalloinvest has formed an operating company called LLC Baikal Mining Company to develop the giant Udokan copper deposit in Far Eastern Russia, Metalloinvest told Interfax.
"The company was established as the operator for the Udokan project. In time, it could form the basis for a joint venture," the holding said.
The operating company was established on November 14.
MGOK won the tender for Udokan, one of the world's biggest copper deposits, on September 10.
MGOK plans to start building a hydrometallurgical plant in the Chita region in 2010 and the first stage of the plant, capacity 150,000 tonnes of cathode copper or 12 million tonnes of concentrate per year, should be commissioned in 2014. Full design capacity of 474,000 tonnes cathode copper per year (36 million tonnes concentrate) should be achieved in 2016.
Rosnedra has said that as of January 1, 2008, Udokan contained B+C1 reserves of 14.43 million tonnes copper and C2 reserves of 5.52 million tonnes. The ores have a Cu content of 1.56%.
Gubiyev said Metalloinvest would be interested in working with Russian Bank for Development and Foreign Economic Affairs (Vnesheconombank, VEB) on the Udokan project.
Asked whether a VEB loan might be raised, he said the company was interested in a private-public partnership to develop Udokan.
Metalloinvest has formed an operating company, LLC Baikal Mining Company, for the Udokan project.
New capacity
Urals Steel, from Novotroitsk, launched a 2800 mm rolling mill and electric smelting shop, initial capacity up to 1 million tonnes of steel per year, on November 20. Crude steel production will rise to 2 million-2.2 million tonnes once the two electric furnaces reach full capacity.
The project cost 14 billion rubles and took three years. It will expand the plant's range of products, which meet all the specifications of pipe manufacturers, oil and gas pipeline builders, shipyards, bridges and various other facilities.
Metalloinvest also plans to build a converter plant at Urals Steel at a cost of around $1 billion and is close to signing an agreement with foreign suppliers and contractors to implement the project.
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Severstal boosts IFRS results in 9 mths, cuts output, forecasts
MOSCOW. (Interfax) - Severstal boosted net profit and sales to International Financial Reporting Standards (IFRS) in January-September but cut EBITDA and capex forecasts for the full year and said it was already slashing output at its Russia-based facilities due to the drop in demand for steel.
Earnings soar
Severstal boosted net profit 140% year-on-year in January-September to $3.24 billion, Severstal said in the IFRS statement.
This was slightly above the $3.17 billion that analysts predicted in a consensus-forecast.
Severstal said sales revenue grew 61% to $18.15 billion (analysts forecast $17.7 billion) and that earnings before taxes, depreciation and amortization (EBITDA) rose 67% to $4.98 billion (forecast - $4.86 billion).
Net debt grew 140% to $3.568 billion as of September 30, from $1.5 billion at the start of the year.
Severstal financial highlights ($ mln):
[TABLE OMITTED]
Net profit attributable to shareholders includes a negative goodwill gain of $219 million from the acquisition of Sparrows Point, $12 million from acquisition of Wheeling and $33 million from acquisition of WCI.
Severstal also saw a net gain after tax of $255 million from the disposal of coal producer Kuzbassugol, and a $101 million net gain after tax from the termination of a long-term electricity supply contract at Severstal North America (SNA).
Net operating cash flow rose to $2.137 billion in January-September 2008, from $1.996 billion in the same period of last year.
Meanwhile, Severstal boosted net profit to Russian Accounting Standards (RAS) 35% year-on-year in January-September to 45.117 billion rubles, the company said.
Sales revenue grew 39% to 203.277 billion rubles.
Financial highlights ('000 rubles):
[TABLE OMITTED]
Lower EBITDA, capex forecast
The company also said it was now forecasting EBITDA of $5.1 billion-$5.3 billion for the full year - it had earlier said $5.8 billion-$6.1 billion - and was lowering its capex forecast by 20%.
Severstal said the bulk of the planned $8 billion investment program for 2009-2011 had been deferred until market visibility and conditions improve. Severstal had planned $2.7 billion-$2.9 billion capex in 2009, as much as originally targeted for 2008.
It said production is being reduced further, reflecting market conditions.
Also, a headcount reduction program is underway across the group.
Severstal has assets in Russia, North America, Europe and Ukraine. The main beneficiary is the general director, Alexei Mordashov, who owns more than 82% of the company. The free-float is around 18%.
"Severstal achieved strong results for the first nine months of 2008, with significant growth in all our markets driven by price increases, volume growth and margin improvement," said Alexei Mordashov. ""However, in light of the uncertain global economic outlook and its impact on the world's steel consuming industries, we have put in place a series of strong management actions to allow the group to continue to operate profitably in a tougher environment. We cut back on our planned capital investment program," Mordashov said.
Production
Severstal has also lowered its steel production forecast for 2008 to 19.7 million tonnes, down 14% from the previous forecast of 23 million tonnes, Sergei Kuznetsov, the company's chief financial officer, said during a conference call on November 18.
The company now expects to manufacture 18.8 million tonnes of steel products and produce 6.8 million tonnes of coal, instead of the 21.9 million tonnes and 7.3 million tonnes forecast earlier. Production of iron ore concentrate and pellets is forecast to total 13.9 million tonnes this year, instead of the previously expected 15.2 million tonnes.
Severstal halved output...
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