October 18, 2017 / 1:17 PM / 7 months ago

Polish miner JSW considers bond issues to finance rise in coking coal output

WARSAW (Reuters) - Polish miner JSW, the EU’s biggest producer of coal for steelmaking, could issue bonds in the United States and on the domestic market at the start of 2018 as it plans to increase investment and output, the company’s chief executive said.

The state-run company nearly collapsed in 2015 on a slump in coking coal prices. But thanks to a restructuring and a rebound in prices it booked a net profit of 1.43 billion for the first half of 2017, beating analysts’ expectations.

As part of the restructuring JSW sold some of its assets and offloaded a loss-making mine which is now set for closure. It also reduced bonuses for miners. With a workforce of around 26,000 people it is one of the biggest employers in Poland.

Now the company wants to take advantage of low interest rates and the strength of its core market for coking coal to secure financing for future investment.

“Why not use the money when it is cheapest? This is the best moment to reach for new financing ... When a worse year comes up again and we make losses then we will not be able to approach banks for financing,” Daniel Ozon, JSW’s acting chief executive told Reuters.

At the start of next year JSW plans to tap the U.S. market, most likely with a benchmark $500-million bond issue as well as the Polish market with a smaller issue aimed at re-financing JSW’s current debt.

In September JSW conducted an early buy-out of its bonds and still has to buy bonds worth 565.5 million zlotys and $101 million.

“Investment banks have been approaching us and offering a bond issue on the U.S. market with seven- and even 10-year maturities. Today, in the world of low interest rates there is a need for products that generate returns,” Ozon said.

He added that banks are still interested in financing the production of coal for steelmaking and JSW wants coking coal to constitute around 85 percent of its total output.

OUTPUT AND CAPEX

As part of its new strategy, which is expected to be presented in November, JSW plans to increase its coking coal output by 2030 by 38 percent to around 16 million tonnes while cutting its production of thermal coal by over 60 percent to 2 million tonnes, Ozon said.

Last year JSW produced 11.6 million tonnes of coking coal and 5.2 million tonnes of hard coal, but that included production at the Krupinski mine, which was transferred this year to state mining restructuring firm SRK that will eventually close it down.

Increased production will need more investment and thus Ozon sees JSW’s capital expenditure running at 1.3-1.8 billion zlotys a year over the next few years compared to 370 million zlotys in the first half of 2017.

JSW’s share price is up by 49 percent this year, at 99.88 zlotys on Wednesday, following a 500 percent jump in 2016 when coking coal prices rebounded.

“Personally I would expect a slight fall in coking coal prices in the near term and their stabilization in the coming years,” Ozon said.

Writing by Agnieszka Barteczko; Editing by Greg Mahlich

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