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Raspadskaya has competitive advantage, says Deutsche UFG


Raspadskaya, Russia’s second largest coking coal producer, is likely to become the most competitive coal miner in the country, according to analysts from Deutsche Bank’s Russian research arm, Deutsche UFG. In a research note, Deutsche UFG analyst, Alexander Pukhaev, said the company had the highest reserves to production ratio in Russia, with audited JORC (Joint Ore Reserves Committee) proved and probable reserves of 782 million mt. “At current production levels, this equates to a mine life of another 72 years,” he added. Deutsche UFG said Raspadskaya plans to raise production at a compound annual growth rate of 12.5%, bringing output to 17 million mt of run-of-mine (ROM) coking coal. The bank estimated that the coal producer would incur a 2006 concentrate cash cost of $19/mt, translating to an advantage of at least $10/mt over the Russian industry average. “Even globally, Raspadskaya is positioned in the lowest quartile of the cash cost curve,” said the bank. Concluding that Raspadskaya is likely to be the most competitive coal producer in Russia, Pukhaev said that a domestic market starved of imports due to high transportation costs “will therefore provide opportunities for the company to expand.” However, Deutsche UFG warned that a major risk to its financial forecast for Raspadskaya was coal price volatility. “While Raspadskaya is currently one of the most profitable coal companies in Russia, and could in our view weather a decline in prices better than other companies, we still see coal prices as a major risk,” said the research. The bank also cited transportation tariffs as another major risk for Raspadskaya, “given that the majority of its customers are located more than 2000 kilometers away from its mining operations.” Earlier this month, on announcing its preliminary 2006 operating results, Raspadskaya blamed falling coking coal prices for its failure to improve on 2005 sales.

Source: Platts International Coal Report - Gareth Carpenter, London
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