coal energy – a leading ukrainian coal mining company · (6) here and onwards in presentation...

Coal Energy – a leading Ukrainian coal mining companyManagement Presentation

December 2012

2

DisclaimerThe information in this document has not been independently verified and no representation or warranty, express or implied, is made as to, and noreliance should be placed on, the fairness, accuracy, completeness or correctness of the information or opinions contained herein. None of the Companyor any of its affiliates, advisors or representatives shall have any liability whatsoever (in negligence or otherwise) for any loss whatsoever arising from anyuse of this document, or its contents, or otherwise arising in connection with this document.

This presentation does not constitute or form part of any offer or invitation to sell or purchase, or any solicitation of any offer to sell or purchase any sharesor securities in Coal Energy S.A. It is not intended to form the basis upon which any investment decision or any decision to purchase any interest in CoalEnergy S.A. is made.

Information in this document relating to the price at which investments have been bought or sold in the past or the yield on investments cannot be reliedupon as a guide to future performance.

Certain statements in this document are forward-looking statements. By their nature, forward-looking statements involve a number of risks, uncertaintiesor assumptions that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements. Theserisks, uncertainties or assumptions could adversely affect the outcome and financial effects of the plans and events described herein. Forward-lookingstatements contained in this document regarding past trends or activities should not be taken as a representation that such trends or activities willcontinue in the future. You should not place undue reliance on forward-looking statements, which speak only as of the date of this announcement.

Except as required by law, the Company is under no obligation to update or keep current the forward-looking statements contained in this document or tocorrect any inaccuracies which may become apparent in such forward-looking statements.

This presentation is directed solely at persons who are (i) outside the United Kingdom; or (ii) accredited investors, as such term is defined in the UnitedStates Securities Act of 1933,as amended; or (iii) persons falling within Article 19(5) of The Financial Services and Markets Act 2000 (FinancialPromotion) Order 2001(as amended) (the "Order"); or (iv) persons falling within Article 49(2)(a) to (d) of the Order; or (v) persons to whom thispresentation may otherwise be lawfully distributed (all such persons together being referred to as "relevant persons"). By accepting this presentation therecipient warrants and represents that he or it is a relevant person. Recipients of this presentation in jurisdictions outside the United Kingdom shouldinform themselves about and observe all applicable legal requirements in their respective jurisdictions

3

Contents

Company Overview 4

Coal Mining Market Overview 7

1Q FY2013 Performance Overview 11

1

2

3

1. Company Overview

4

Reserves(3)

Production(4)

Revenue

EBITDA

151.2 mln t

0.5 mln t

US$ 39.4 mln

US$ 13.5 mln

Domestic / export sales(5) 93% / 7%

Thermal / coking coal sales(5) (6) 80% / 20%

Sales 0.4 mln t

235.5 mln t

Net Debt(7)

Net debt/EBITDA(7) (8)

US$ 25.2 mln

0.4

Location of Operating Assets1Q FY2013 Results (1)

Mining companies

Waste dumps processing unit

Coal beneficiation plant

Coal-bearing waste dumps

Headquarters

Donetsk

Russia

BelarusPoland

Slovakia

HungaryRomania

Moldova

UKRAINE

Bulgaria

Turkey

Georgia

Resources(2)

5

Coal Energy – Key Indicators

(1) The Group’s 1Q FY2013 commenced on the 1st July 2012 and ended on the 30th September 2012(2) Total in-place resources under JORC(3) Proved and probable recoverable reserves under JORC(4) Production output includes 473 thousand metric tonnes (kt) of mined run-of-mine (ROM) coal and 71 thousands tonnes of saleable coal produced from waste(5) Sales breakdown in value terms for export / domestic and by coal types(6) Here and onwards in presentation coking coal segment includes fat (coking) and gas (dual-purpose) coal, thermal segment – anthracite, lean and long-bituminous gas coal.(7) As of 30 September 2012 net debt includes i.a. short - and long-term obligations under financial lease in amount US$7.8 million.(8) EBITDA calculated for the last 4 consecutive quarters

Investment Highlights Summary

6

Significant reserveswith growth potential1

• #3 by reserves and #4 by production in Ukraine among private coal producers(1);

• 235 mln.t of in-place coal resources under JORC, 151 mln.t of proven and probable coal reserves under JORC(2);

• 2x reserves growth potential.

Integrated businessmodel and wide rangeof products

2

• Vertical production chain of coal mining, beneficiation, waste processing and trading ensures higher operating marginfor Coal Energy compared to its competitors;

• Wide range of coal grades, such as anthracite, low and high volatility thermal and coking coals offered to a variety ofindustries both in Ukraine and abroad.

Brownfield expansionstrategy3

• The strategy is to commercialize significant unexploited coal reserves and increase profitability utilizing existing minesinfrastructure and achieving significant economy on further CAPEX as well as by leveraging Coal Energy’s advantageouslogistics position;

• FY16 production goal – to mine 3.8 mln.t of saleable coal from underground mining, c. 2.4x increase from the FY12mining level.

High financialperformance4

• EBITDA for the 1Q FY2013 composed US$13.5 million

• Steady leverage– Net debt/EBITDA ratio – 0.4

• High profitability indicators: gross profit margin comprised 38.1%, EBITDA margin composed 34.3%, net profit margintotalled 19.0%

Listed on the WSE withhigh-quality corporategovernance in place

6• Listed on the WSE on Aug. 4, 2011 (ticker: CLE:PW),

• BoD with six directors, three of which are INEDs. Audit committee is in place;

• The founder and CEO has more than 17 years of experience in mining and mining machinery building.

Solid operationalresults5

• Mining output increased up to 473 thousand tonnes by 21.7% y-o-y

• Coal sales increased up to 440 thousand tonnes by 12.8% y-o-y,

• Large share of sales under long-term frame agreements.

(1) Private producer means not state owned or controlled; rating calculated based on ICU (Investment Capital Ukraine) research in terms of 2011 calendar year data(2) Does not include license of Nedra Donbassa LLC dated 27 December 2011 issued for 20 years for 24.8 mln.t reserves of coking coal (valued under Ukrainian methodology)

2. Coal Mining Market Overview

7

0

50

100

150

200

250

300

2010 2015 2020 2025 2030

Nuclear Hydroplants Alternative Thermal and heating

Thermal coal market: production growth and good perspectiveson the domestic market ….

8

Ukraine’s Thermal Coal Output (Mt)

• Local power plants bought 37.2 mln tonnes of salable coal in 2011, which accounted for 82% from the total thermal coal output. During 9 months 2012 the powerplants consumed 3.6% more thermal coal compared to the same period of 2011.

• Although nuclear and hydro power plants produce cheaper electricity than thermal; nuclear power plants are inflexible in electricity production volumes anddepend on imported nuclear fuel (Russia) and hydro power plants already operate close to full capacity. Thermal and heating power generation is the onlyreliable source flexible in producing the necessary energy volumes with the sufficient coal reserves as a fuel to cover any growing needs by 100%.

• We expect electricity production in Ukraine to increase at a CAGR of 2.6% over 2012-15, up to 215 TWh, driven by coal-fired power plants (electricity from thatsource supposes to grow at 3.9% CAGR to 82 TWh). We thus forecast domestic demand for marketable thermal coal to surge by 12% in the next 3 years, to 69.2mln tonnes till 2016.

Electricity production forecast with breakdown by producer, TWh/h

Prices ($) of Coal and Natural Gas perUnit of Calorific Value

The growth in the total thermal ROM coal output is connected withgrowing demand as well as CAPEX from private mining companies

Source: Energobusiness, www.rbc.ua

The share of thermal generation will grow along with thegrowth in electricity generation

Coal is … cheaper than natural gas forUkrainian consumers…

Private mining companies dominate in volumeof thermal coal output (9 months 2012)

… is crucial for energy security… is able to secure needs by 100%

Source: SSC, Coal Energy’s estimations

• Government announced transition of power andheating generations from natural gas to coal in orderto save up to 4-5 bln m3 p.a. of natural gas and tocreate additional demand for 7-10 mln. tonnes p.a. ofthermal ROM coal.

• Financing has been agreed with State Bank of Chinafor US$ 3.6 bln.

• Government announced privatization program ofstate-owned mines, heating and thermal power plantswhich would open the opportunity of verticalintegration for private Ukrainian mining companies.

Source: renewed draft of Energy Strategy for Ukraine till 2030.

Based on indicative prices of Coal of Ukraine and gas prices at consumers

0.010.020.030.040.050.060.0

48%

3%11%

3%13%3%

7%2%6%2%

23%

Pavlograd Coal (DTEK) AntrazitSverdlovantrazit (DTEK) LvovugolRovenkiantrazit (DTEK) SelidovugolKomsomolets Donbassa (DTEK) ZhdanovskayaDobropolye Coal (DTEK) Coal EnergyOthers

4.3

15.7

0.0

5.0

10.0

15.0

20.0

Coal Natural gas

http://www.rbc.ua

9

Thermal coal market: ... growing competition and lagged demandon export destinations

Largest thermal coal exports by country (9 months 2012) Thermal coal exports from Ukraine slows down dueto difficult export markets, Mt (9 months 2012)

Mariupol

Ukraine

Russia

Belarus

Poland

Slovakia

Hungary

Romania

Bulgaria

Berdyansk

Izmail

Yuzhniy

1

KerchSevastopol

Turkey

Power plants

Coking plants

Cement plants

Marine transportation routsRailway transportation routs

Source: SSC

Prices ($/tonne)

Source: Metal expert, the Group’s data

The countries of Eastern Europe and Turkey are the key destinationsfor export opportunities

Price increase for thermal coal is caused by growingdemand for it in Ukraine, but margins experience

competition

• Transportation costs from Donetsk/Luhansk mines to the border with Poland or Slovakiarange from $15-20/t and transportation to sea ports costs $5-10/t.

• Dependence of the European countries on thermal coal for power generation remains high,more than 50% in Poland, Bulgaria, Czech republic, Greece (source: EURACOAL).

• Margin-pushers like insufficient growth in supply of coal substitutes at the same price level,declining reliance on nuclear power, lack of the liquefied-natural-gas (LNG) facilities (incl.sea port terminals and carrier fleet) are counter-facing the contributors of margin tightening,like potential switch to other than coal types of fuel, slowdown of the Chinese and worldeconomies.

• Thermal coal remains the cheapest fossil fuel, resources of which are relatively moreevenly distributed throughout the world.

• Being the main player on the local coal market, DTEK has an incentive to elevate theprices for thermal coal, with inflated electricity production costs to be passed on toconsumers through a hike in electricity prices.

• Increasing switch by steel mills, cement plants, and other enterprises from expensivenatural gas consumption to steam coal.

Proximity to Eastern Europe gives Ukrainian coallogistical advantages for delivery to its main export

destinations

Source: SSC

22%

14%

10%7%6%

6%4%

31%

Bulgaria

Turkey

Belgium

Poland

Russia

Spain

Slavakia

Others 01234567

2006 2007 2008 2009 2010 2011 2012E 9m2011

9m2012

020406080

100120140

Grade G Domestic Grade DomesticEurope CIF ARA

10

Coking coal market: price correction on the back of significantdeferred demand

Ukraine’s Coking Coal Output, Mt (9 months 2012)Extraction has been falling since 2001…

Coking Coal Production, 9 months 2012

Correction in prices is caused by volatility onthe steel market (9 months 2012)

Source: Metal Courier, Bloomberg

Source: SSC, Energobusiness

Source: Energobusiness, Coal Energy calculations

• The decrease in price is caused by global steel market downturn and as a result – partial substitution ofUkrainian coking coal with higher quality Russian imported coking coal.

• Extraction of coking coal is falling due to depletion of coking coal seams; accidents which permanently ortemporarily reduced production capacity; underinvestment and mismanagement at state-owned mines.

• Prices for coking coal in Ukraine are highly dependent on global trends due to insufficient domesticproduction, decreasing quality of end-product and hence significant imports of the commodity. We expectrelatively strong foreign demand and domestic shortages to keep coking coal prices robust in 2012-13.Additional factors that will support prices globally in 2012-16 are high development costs for new mines,and growth in operating costs at existing mines due to extraction being forced deeper underground, andoccasional supply shocks caused by natural disasters.

Local private mining companiesdominate in volume of extraction

… contributing to growing imports…

… mainly from Russia

Share of imported coking coal in consumption (9months 2012)

Key import destinations (9 months 2012)

Prices ($/t)

0.05.0

10.015.020.025.030.035.040.045.0

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

E 20

11 20

12

69%6%

23%

2%

Russia

Kazakhstan

USA

Others

38%

62%

Importedcoal

Ukrainiancoal

41%

16%5%

4%2%

2%

30%

Krasnoarmeiskaya-ZapadnayaKrasnodon coal

Zasyadko

Krasnolimanskaya

Coal energy

Pavlogradugol

Others

050

100150200250300350400

Oct-1

0

Dec-1

0

Feb-

11

Apr-1

1

Jun-

11

Aug-

11

Oct-1

1

Dec-1

1

Feb-

12

Apr-1

2

Jun-

12

Aug-

12

Type Zh, domestic.Type K, domesticImport, Russia, DAFExport, Australia, FOB

3. 1Q FY13 Performance Overview

11

91.2%

8.3%0.5%

US$39.4mln

1Q FY13 1Q FY12

US$39.7mln

97.2%

2.3%0.5%

Coal from own mining and waste processing Trading activities Other activities

93.4%

6.6%

12

Integrated Business ModelCoal Energy activities include all stages of coal production, waste dumps processing, coal beneficiation and trading,

the first two from the list being the key activities of the company

ROM thermal coal

Coal mining

Coal beneficiation plant

Waste dumps processing

Thermal coal concentrate

Consumers

Middlings

Acquisitions fromthird parities

ROM coking coal

ROM coking coal

Government(2)

Power plants

Cement plants

Municipalities,households

ROM thermal coal that doesn’t require beneficiation

Saleable thermal coal

Sales of ERUs(1)

Coking plantsSaleable coking coal

(1) Emission Reduction Units 2(2) Government acts as agent according to Kyoto Protocol procedure

Sales by segments, $US mln1Q FY12

Source: the Group’s data

Sales by Destination, $US mln1Q FY13

US$39.7mln

US$39.4mln

58.2%

41.8%

Domestic Export

176

152

175158

146132

118

-

40

80

120

160

200

FY11 FY12 1Q FY12 2Q FY12 3Q FY12 4Q FY12 1Q FY13

Coking, domestic

818

1,5751,472

330 337 302

503375

-

400

800

1,200

1,600

FY10 FY11 FY12 1Q FY12 2Q FY12 3Q FY12 4Q FY12 1Q FY13

Thermal

84

264 261

60 70 57 73 65 -

400

800

1,200

1,600


Coking

The decrease wascaused mainly byactivity reduction inthe steel markets

13

Key Company Sales Indicators

Coal price dynamics, US$ per tonne

Coal sales volume, kt


The decrease was causedmainly by abnormally highcomparison base: in 4QFY2012 Coal Energymarketed inventory surplus,created in the previousquarter.

The decrease in price is caused by global steel market downturn and as aresult – partial substitution of Ukrainian coking coal with higher qualityRussian imported coking coal

4959

80 74 80 81 82 7963

8290

100 9682 82

91

-

40

80

120

160

200


Thermal coal price dynamics, USD/tonne:

Thermal, domestic Thermal, export

Weighted average price EXW for the 1QFY13 composed US$78 per tonne out ofwhich: US$88 in July; US$75 in Augustand; US$66 in September.

568

262

134 168 15752 53 53 60 71

400

105

105 123

-

100

200

300

400

500

600

FY10 FY11 FY 12 1Q FY12 2Q FY12 3Q FY12 4Q FY12 1Q FY13

Concentrate Midlings

1Q FY13

14.7

24.3 26.3 26.623.1 22.3

32.5 30.6

-

10

20

30

40

50

60

70


During 4Q FY12 and 1QFY13 middlingswere beneficiated on Postnikovskayabeneficiation plant, hence transport costsincreased within the cash cost structure.

39.4

64.3

49.1 47.950.9

53.8

44.2 46.0

-

10

20

30

40

50

60

70


446

794

1,329

320 312 322 375 400

1

267

310

69 83 82 76 73447

1,061

1,639

389 395 404 451 473

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800


Thermal Coking

14

Production and Cash Costs OverviewUnderground Mining, kt

Cash Cost of Mining, US$ per tonne

Waste Processing, kt

Cash Cost of Waste Processing, US$ per tonne of concentrate


123 thousand tonnes of middlings werebeneficiated on Postnikovskaya plantinto 71 thousand tonnes of high qualitycoal concentrate

4Q FY12

15

Dynamics of Production Results

Coal output by types of coal, kt

Coal output by segments, kt


125 123 123 121 121 123 125 126 124 126153 156 157 157 156

135

21 24 24 26 29 28 28 26 28 28

25 23 25 25 22

24147 147 147 147 150 151 152 152 152 155

178 178 182 182 179

159

0

20

40

60

80

100

120

140

160

180

200

Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12

Thermal coal Coking coal

129 130 130 130 133 133 135 135 135 135158 158 159 159 156 156

17 17 17 17 18 18 18 18 183

20

20 20 24 23 23147 147 147 147 150 151 152 152 152 155

178 178 182 182 179

159

0

20

40

60

80

100

120

140

160

180

200

Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12

Underground mining Waste dump processing Coal concentrate that was beneficiated on Postnikovskaya plant

Coal Energy Trading Ltd

16

Appendix 1. Legal Structure

Coal Energy S.A.

Nertera Investments Limited

100%

Luxembourg

Cyprus

Ugledobycha LLC

Eximenergo LLC

Nedra Donbasa LLC

CwAL LE “Sh/U Blagoveshenskoe” (1)

Tekhinovatsiya LLC

Donbasuglerazrabotka LLC

Donugletekhinvest LLC

Donantracit LLC

Donprombiznes LLC

Ukraine

99%

99%

99%

99%

99%

99%

99%

99%

CwAL LE “Mine St. Matrona Moskovskaya” (2)

Antracit LLC

99%

99%

Coal beneficiationCoal miningAsset holding company Waste dump processing Coal trading (Ukraine)

100%

BVI

Coal trading (Export)

99%Coal Energy Ukraine LLC

Consultancy services for the companies of the Group


99%

(1) Renamed CwAL LE Sh/U Chapaeva (2) Renamed CwAL LE Novodzerzhynskaya mine

coal energy – a leading ukrainian coal mining company · (6) here and onwards in presentation...

Documents