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Appendix

Renaissance Capital

3 December 2018

Steel

Drivers of met coal producers’ cost curve position

Coking coal realisations vs benchmark

Russian steel companies receive below-benchmark price for their coking coal sales. We believe this is largely reflective of product quality.

Current steel margins and a Chinese push to increase productivity favour high-quality met coal production.

Figure 72: Met coal price realisations, $/t
			Coking coal revenue, $/t				2017 HCC benchmark price, $/t
250
		200		193			2017 HCC benchmark price, $/t, 188
200
					185	181
							172
150							143
							131
$/t
100							97
50

Figure 73: Met coal price realisations, $/t
20				Premium (Discount) to benchmark…
		12
		5
0
		-3			-7
		Average, $/t, -25
-20						-16
-40
						-45
-60
						-57
-80

0

-100

-91

Glencore South32 Anglo

BHP

Vale

Evraz Severstal MMK

Glencore South32

Anglo

BHP

Vale

Evraz Severstal MMK

Source: Bloomberg, Company data, Renaissance Capital estimates

Source: Bloomberg, Company data, Renaissance Capital estimates

Cash unit costs

Evraz’s unit costs are the lowest among the steel producers we cover.

Figure 74: CY17 unit cash costs per tonne, $

				Coking coal cash costs, $/t			Average, $/t
	160								142
	140
	120						109	110
	100	Average, $/t, 87				81
				75	79
$/t
	80
	60		57
		42
	40
	20
	0
		Evraz	Glencore	BHP	MMK	Severstal	South32	Anglo	Vale

Source: Bloomberg, Company data, Renaissance Capital estimates

46

vk.com/id446425943

Renaissance Capital

3 December 2018

Steel

Maintenance capex

Maintenance capex is the last important component affecting miners’ all-in, qualityadjusted cash costs or required breakeven benchmark prices.

We calculate that during 2017, MMK’s maintenance capex was the lowest in our coverage universe, while South32 spent the most.

Figure 75: CY17 sustaining capex per tonne, $/t

				Sustaining capex, $/t			Average
35.0										31.6
30.0
25.0
20.0							17.6	18.6	19.4
	Average, 14.2
15.0					12.1	12.3
			10.3	10.7
10.0
	4.3	5.0
5.0
0.0	Mechel	Glencore	MMK	Vale	Evraz	BHP	Teck Resources	Severstal	Anglo American	South32

Source: Company data, Renaissance Capital estimates

Life and margin

High-margin assets and long reserve life provide strategic advantages. We believe Evraz is best positioned among the Russian steel producers we cover with more than 150 years of reserve life.

Figure 76: Met coal reserve life and CY17 EBITDA margins per tonne

	145
, $/t	120
		Teck Resources	BHP
margin
	95	Anglo American
EBITDA
coalmet	70	Glencore
CY17		South32
	45	Severstal

Mechel

Evraz

Vale

20

-

50

100

150

200

250

Reserves life (years)

Source: Company data, Renaissance Capital estimates

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