MMK Viktor Rashnikov acquired the Tikhov mine in Kuzbass from PJSC Koks

MMK seeks to increase its supply of its own coal: the company bought the Tikhov mine in Kuzbass from the IMH group, which in the future can provide production of 2.8 million tons. The deal will increase synergies between MMK’s coal assets, while IMH will help reduce its debt burden. According to analysts, the increase in own coal production will allow MMK to reduce the cost of steel production by 3-5%.

MMK Viktor Rashnikov I bought at PJSC Koks (part of the IMH group) the Tikhov mine in Kuzbass. Both parties announced the completion of the transaction on July 20, without disclosing its value.

The Tikhov Mine began operations in 2017 and has a capacity of around 1.3–1.5 Mtpa with plans to expand to 2.8 Mtpa. The mine produces grade 2Zh coal, which is one of the best grades of fat coking coal. The mine is located in close proximity to the operating mine “Kostromovskaya” LLC “MMK-Ugol”. These mines are developing neighboring sections of the Nikitinsky coal deposit in Kuzbass, which has high reserves of Zh.

MMK said that the acquisition of the mine will allow obtaining direct synergy between the assets and ensuring the full load of the Belovskaya central processing plant with its own coal and increasing the company’s profitability.

IMH also stated that the sale of the mine will not affect the volume and quality of coke produced, and the falling volumes of its own coking coal will be compensated by purchases on the domestic market. There also notedthat the sale of the mine will provide an opportunity to focus on the development of the iron ore base and will optimize operating and investment costs, improve the financial and economic performance of the IMH group.

IMH back in May declared about plans to sell the mine, then the buyer was not named. The group noted in a message to holders of Eurobonds worth $350 million maturing in 2025 that this asset was one of the guarantors for the issue. The need for the sale was explained by the company’s desire to focus on the metallurgical segment. For the mine, IMH expected to earn 22 billion rubles, which was planned to be used to reduce the debt burden. In 2023, the group will have to repay loans for 43 billion rubles.

The acquisition of the mine increases MMK’s integration into coal, which is currently estimated at 40%. At the end of 2022, the company increased the production of coal concentrate by 1.9%, to 3.5 million tons.

Of all the major Russian metallurgists, MMK has the least integration into coal and iron ore, which makes the company vulnerable to fluctuations in the market for raw materials. This became especially noticeable in 2022, as sanctions reduced the ability of Russian steel companies to support metal exports, while the price of raw materials in the domestic market remained highly correlated with export quotations.

Dmitry Smolin, senior analyst at Sinara investment bank, says that in the next two to three years after the mine reaches its full capacity of 2.8 million tons, the cost of steel production at MMK may decrease by $10-20 per ton, or 3-5%, due to lower production costs and lower ash content of coal in the new mine, as well as the full load of the processing plant (up to 6 million tons).

Evgeny Zainullin