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NWR considers sale of Paskov mine, OKD concluded a deal with unions

NWR considers sale of Paskov mine, OKD concluded a deal with unions

05.06.2013 8:31
Autor: Tomáš Sýkora, Patria Finance

Bloomberg (based on IDNES source) wrote yesterday that NWR considers sale of Paskov mine as „one of possibilities“ (-> to improve its cash-flow). The company added the sale has not been decided yet and a decision will be taken following stress tests which are under way at all mines.

The company said earlier it will conduct a review of all its mines and may shut some unprofitable sites to improve its operating cash-flow generation. The company goal is to decrease of mining cost per tonne and also to mine lower portion of unprofitable thermal coal in the mix since 2014.

Paskov mine is the smallest of OKD’s mines producing about 1 mln. tones of coal per year with 90% portion of high quality (hard) coking coal. On the other hand, Paskov is the mine with highest cost in our opinion as it is the most labour intensive one – employing 3 000 workers (20% of the total) which means that roughly twice as high number of people is needed to get a tonne of coal vs. average. Please note that labour costs represents circa 50% of total mining costs.

Based on total reserves of coking coal of 20,4 mln. of tonnes and mining unit costs of 100 EUR per tonne expected by us, a current (reserve-based) value of the mine would roughly leads to (undiscounted) 250 mln. EUR if we use 120 EUR/t as current selling price of high quality Paskov coking coal and also deduct necessary CAPEX of about 150 mln. EUR to get all the coal in the mine. There may also be a link with probable coke battery sale as we expect 30% of Paskov coking coal to be consume internally in OKK. Nevetheless, we expect that selling of the mine would be really doubtful and we can hardly imagine any bidders – may be just one – JSW, which left a possible selling price with question marks.

Similar speculations could lead to a positive reaction on NWR shares (as yesterday’s +6,6%) as it would notably improve NWR’s cash-flow but there is a lower value of the company behind asset saleas at the end of a day as well as we see the sale as improbable.

We maintain our 30 CZK target price with NEUTRAL recommendation and at the moment we do not recommend buying of NWR shares unless (currently still falling) coking coal price would improve. Please note that hard coking coal spot price as well as 3Q12 benchmark contracts seem to be of about 10-15% below 2Q13 contracts.

NWR also said OKD concluded a deal with unions on summer bonus timing. The new collective bargaining agreement covering years 2013-2017 has not been signed, and negotiations are ongoing.

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