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ATON - Russian Coal Company Day, Sector Day Wrap-Up - Feb 27, 2013, KOKS Group.

KOKS Group

Representatives: Sergey Frolov, Director of Investor Relations; Ekaterina Popova, Investor Relations Manager

Major global merchant pig iron producer with IPO potential in 2015. KOKS Group is the largest merchant pig iron producer in the world. The company also produces substantial amounts of coking coal and iron ore, which aids its vertical integration (it covers around 35-40% of its coal needs and 65% of its iron ore requirements internally). The group's main assets are Tulachermet (pig iron), Kemerovo Koks (coke) and KMA (iron ore).

(To view the original document, please click on the link below:

http://reports.aiidatapro.com/brokers/AtonEN/27022013COAL_DAY_WrapUp.pdf)

KOKS was the only non-listed company at the event. The company may revive its plans to conduct an IPO in London (involving up to 40% of its shares depending on capital market conditions), but this should not be expected before 2015.

Approximately 60% of its revenues in 1H12 came from pig iron and iron ore, with 26% from coke and 4% from coking coal and other products. Coking coal production had the highest EBITDA margins (19%) in 1H12, followed by pig iron and iron ore (12%) and coke (7%).

Focused on improving vertical integration. KOKS's strategy is aimed at increasing vertical integration by improving self-sufficiency in the main raw materials (coking coal, iron ore) to 100%. At the same time, it has no plans to move beyond pig iron as its end product in the near future.

The group's main investments are focused on developing the Butovskaya and Tihova coking coal mines. Butovskaya is expected to launch production from its first coal seam in April, which should take the mine's output to 500kt in 2013. The mine should reach full operational capacity of 1.5mnt per year by 2017.

The Tihova mine is expected to start production in 2H14, reaching design capacity of 3mnt of coal by 2021. It will produce Zh-type coal, which accounts for approximately one-third of the coal used in producing high-quality coke. Russian producers are experiencing a shortage of this coal type and are resorting to imports. Output from the company's own mines should reduce the group's dependency on other suppliers. Pig iron market showing first signs of stabilisation; longer term still very attractive. The company has seen a tentative recovery in pig iron prices since the start of the year: the latest deals were conducted at around $435/t FOB for basic pig iron and $460/t FOB for high-purity grades.

KOKS is optimistic about the merchant pig iron market's long-term prospects. Demand is expected to increase due to rising EAF steel production both in Russia and internationally and the expected shortage of scrap collection within Russia.

Opportunity to increase market share in coke. The group hopes to expand its share (among Russian producers) of third-party coke shipments to the domestic and export markets from the current 28% and 37%, respectively. The driving force should be the diversion of excess volumes from Altai Koks (a unit of NLMK) to the new 3.4mnt blast furnace at Lipetsk.

Capex plans revised downward. The company initially planned to invest RUB9bn in 2012 and the same amount in 2013. The actual figures could be revised down by about 20% and 30%, respectively.

Debt. KOKS had close to $900mn in debt at YE12 with 44% rouble denominated and the remainder in dollars. The average interest rate in 2012 was approximately 7.1%.

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Copyright: Aton OOO (LLC), All rights reserved.

For further information please contact: Aton OOO (LLC),

27 Pokrovka str., bld.6, 105062 Moscow, Russia

phone: (495) 777-66-77, (495) 228-38-99

aton-line@aton-line.ru, http://www.aton.ru
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Publication:Russian Banks and Brokers Reports
Date:Feb 28, 2013
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