20 Jul 2023 15:40

MMK Group closes acquisition of Tikhov Coal Mine from Industrial Metallurgical Holding

MOSCOW. July 20 (Interfax) - LLC MMK Coal, a part of MMK Group, whose flagship asset is Magnitogorsk Iron & Steel Works , has completed the acquisition of the Tikhov Coal Mine from PJSC Koks , which is part of merchant pig iron and coke producer Industrial Metallurgical Holding.

Tikhov Mine, located in the Kemerovo region's Leninsk-Kuznetsky district, went into operation in 2017. It has the capacity to mine 1.3 million-1.5 million tonnes of coal per year, rising in time to 2.8 million tonnes. It mines grade 2Zh coal, one of the most sought after fat grades of coking coal.

The Tikhov Mine is almost adjacent to MMK Coal's operating Kostromovskaya mine. Both mines develop the Nikitskoye bituminous coal deposit.

"The Tikhov Mine acquisition makes it possible to obtain direct synergy between the assets, and to optimize operating costs and mining plans most effectively within the combined complex," the press release said.

In addition, the acquisition will enable MMK Coal to fully utilize the Belovskaya central washing plant with its own coal and improve the company's profitability.

MMK and IMH are not disclosing the terms of the deal. IMH disclosed plans to sell the asset in a circular to holders of $350 million of 2025 bonds at the end of May: the mine was a guarantor of this bond issue and the consent of bond holders was needed to release it from the obligation. IMH expects to receive at least 22 billion rubles for the mine, which it will use for deleveraging purposes - according to IFRS reporting, the group has to repay 43 billion rubles of loans in 2023.

MMK mines 40% of its coal. The group's key coal assets are the Kostromovskaya or MMK-Coal and Chertinskaya-Koksovaya deep mines and a washing plant in Belovo, Kemerovo Region.

MMK said in its annual report that its washing plants produced 3.5 million tonnes of coal concentrate in 2022, up 1.9% from 2021 due to "an increase in MMK's needs for coking coal grades from third-party suppliers." Coking coal production rose 10% to 943,000 tonnes in Q2 2023 due to MMK's growing needs for coking coal concentrate and increase in as well as an increase in toll-processed coals.

MMK's net debt was $393 million and total debt $97 million at end-2021. Net debt/EBITDA was negative 0.09x and net working capital was $1.4 billion. MMK said in the annual report that its EBITDA had fallen "significantly" in 2022 "due to unfavorable market conditions." The EBITDA margin also decreased, and free cash flow was "lower than in 2021" last year, reflecting lower volumes and prices for steel products, the report says.