Kuzbasskaya Toplivnaya Company Announced 2Q and 1H Results

OREANDA-NEWS. August 20, 2012. OJSC “Kuzbasskaya Toplivnaya Company” (RTS/MICEX: “KBTK”), one of the fastest-growing thermal coal producers in Russia, is pleased to announce its operational results for the second quarter 2012 and six months ended June 30, 2012.

Year To Date Operational Results

During the first 6 months of 2012 the Company increased coal production volume by 9% to 4.08 mln. tonnes (6M 2011: 3.74 mln. tonnes). Rising demand for the Company’s sorted coal products among Russian and foreign customers resulted in a growth of volume of coal sorted by coal-crushing and screening units by 19% year-on-year to 3.00 mln. tonnes (6M 2011: 2.53 mln. tonnes). The volume of high quality coal produced by “Kaskad” washing plant from the mining waste, reached 410 th. tonnes during the first 6 months of 2012, increasing by 17% year-on-year (6M 2011: 350 th. tonnes). Currently 10% of coal produced is provided by washing on the “Kaskad” plant.

6M 2012 coal sales volume increased by 8% year-on-year to 4.85 mln. tonnes (6M 2012: 4.51 mln. tonnes). The volume of export sales for the first 6 months of 2012 remains largely the same as the first 6M 2011, when it 3,06 mln tonnes. At the same time, coal sales on the domestic market increased by 24% during the first 6 months of 2012 to 1,79 mln tonnes (6M 2011: 1,44 mln tonnes). The share of export sales in the total sales volume decreased to 63% compared to 68% in the same period last year.

In the first half of year 2012 the average price of the Company’s coal sales increased by 13% year-on-year to RUB 1,318 per tonne (6M 2011: RUB 1,165 per tonne). The average price domestic coal price net of VAT and railroad tariffs increased by 12% during the first 6 months of 2012 and reached the price of RUB 1,256 per tonne (6M 2011: RUB 1,117). The average export coal price in the first half of 2012 was RUB 1,354 per tonne, which is 14% higher than in the same period last year (RUB 1,187 per tonne).

Quarterly Operational Results

 In light of weakened export market for forward sales for 2013, the management team elected to reduce the 2012 annual production target by 6% from 9.30 mln. tonnes to 8.70 mln. in order to supply only profitable export route and avoid a potential excess supply situation with the need to enter into loss making sales. The 2012 production level is therefore expected to be broadly in line with the 2011 production level. At the same time as reducing the production target, the Company has drawn up and is implementing a program to increase the share of sales in the domestic market, where net back pricing can be higher than in some export markets. The company is also working to reduce costs including by reducing the number of external contractors working on site in line with the new planned production level.

The volume of coal production in Q2 2012 decreased by 13% compared to the first quarter of 2012 to 1.90 mln tonnes (Q1 2012: 2.18 mln. tonnes). The volume of coal sorted by coal-crushing and screening units, which produce screened and sorted coal products with high added value, decreased 11% quarter-on-quarter to 1.41 mln tonnes (Q1 2012: 1.59 mln. tonnes). The volume of washed coal production on “Kaskad” washing plant increased by 5% quarter-on-quarter to 210 th. tonnes (Q1 2012: 200 th. tonnes).

Due to the normal seasonal slow down in coal trading activity after the winter heating season, the Company decreased the volume of coal sales by 27% in Q2 2012 compared to Q1 2012 resulting in sales of 2.04 mln. tonnes (Q1 2012: 2.81 mln. tonnes), including 1.80 mln. tonnes of coal produced by the Company and 0.24 mln tonnes of coal purchased from third parties.

During the quarter, the Company sold 0.59 mln. tonnes of coal on the domestic market, which is 44% higher than the same period last year (Q2 2011: 0.41 mln. tonnes). Compared with the Q1 2012 (1.21 mln. tonnes), the volume of domestic coal sales decreased by 51% due to seasonality of coal consumption on the domestic market. In Q2 the volume of export shipments reduced by 10% compared to Q 2012 and was 1.45 mln. tonnes (Q1 2012: 1.61 mln. tonnes). As a consequence, the share of export sales in the total sales of coal volume increased to 71% in Q2 2012 compared to 57% in Q1 2012.

In Q2 2012 the average price of selling coal decreased by 6% quarter-on-quarter to RUB 1,271 per tonne (Q1 2012: RUB 1,352 per tonne) following the price decrease on the main export markets.
The average domestic coal price net of VAT and railroad tariffs increased by 6% quarter-on-quarter and reached RUB 1,302 per tonne (Q1 2012: RUB 1,233), driven by increase of higher value added sorted coal sales.
The average export price net of railroad tariffs decreased by 13% quarter-on-quarter to RUB 1,259 per tonne (Q1 2012: RUB 1,440 per tonne). Reduction of the average prices on export markets during the quarter are linked with declined demand on the Asian market, which is connected with slowdown of growth in China and in the Eurozone countries.

The average export price in Asia-Pacific region was RUB 1,400 per tonne, which represents a decrease of 5% compared to Q1 2012 (RUB 1,472 per tonne), however on a year-on-year basis slaes prices in 2012 are significantly higher than in 2011 with Q2-2012 prices being 43% higher than they were in Q2 2011 (RUB 978 per tonne). The average selling price in Q2 2012 on European market decreased by 22% compared to Q1 2012 (RUB 1,421 per tonne) and amounted RUB 1,115 per tonne.

The Company plans to release its unaudited interim 6M 2012 IFRS Statements on August 24, 2012. A conference-call to discuss the financial results will be held the same day at 5 PM Moscow time (2 PM London time, 9 AM New York time). Conference call details will be issued separately.