We upgrade Avdiyivka’s output forecast following the addition of a new consumer in Makiyivka Steel via the Metinvest/Smart merger, the expected transfer of orders from the group’s two smaller coke plants, and higher demand from the Enakievo and Azovstal steel mills. Overall, we estimate that Avdiyivka’s coke output will exceed our previous forecast by at least 30% in the next five years.
Krasnodon Coal, a 99%-Avdiyivka-owned, will increase extraction in 2007-2008 after launching three new longwalls in 2007. Unlike divested Pavlohrad Coal, Krasnodon is fully integrated into Metinvest's steel production chain. In February, SCM, the parent company for Metinvest, bought Black Sea Port Avlita, which after modernization, is expected to be used to import coking coal from Australia, Canada and USA starting in 2010.
In valuation, We apply a DCF approach to capture the company's growth potential over 2008-2012.
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