OREANDA-NEWS. December 11, 2007. The investment company (IC) "Concord Capital" (Kiev) has raised the target value of the shares of Komsomolets Donbassa Mine OJSC (Kirovskoye town in Donetsk Region) to $2.5.

The current share price is $2.51, which corresponds to the company’s market capitalization of $837.2 m. "Concord Capital" has lowered the shares’ rating from "to buy” to "to hold".

IC analysts admit that growth of the company’s mid-term revenue will depend on the average sales price of coal produced by the company, since its output will not be increased significantly, which, according to analysts, is related to the currently limited sales market. According to the press release of Donbass Fuel-Energy Company Ltd (DTEK, Donetsk), the coal output by Komsomolets Donbassa Mine will increase to 4.0 m ton per year from the current 3.6 m ton before 2012 (+15% compared to the 2007 level).

"Notwithstanding that we expect 35% revenue growth in 2008 to $205m with the net profit margin increase to 20% from 12% in 2007, in the mid term, the company’s sales are subject to reduction risk", - explains Yevgeniy Cherviachenko, an analyst of "Concord Capital".

Vostokenergo power generation company is the main buyer of the mine’s coal, purchasing coal at prices (an average purchasing price in the 3rd quarter of the current year is $43/ton) lower than those for state-owned power generation companies whose major suppliers are state mines ($66/ton). This enables Vostokenergo to produce cheaper electricity and, according to market regulation rules, to load the capacities more (the greatest load among Ukrainian generation companies for the first nine months of 2007) – the analysts admit.

According to the calculations of "Concord Capital", the difference between the sale price for the coal produced by the mine has reached 35% compared to the coal sale price of state mines, while by 20% in the first quarter. According to IC forecasts, it will remain at 30% in the year 2008.

The current formation of the thermal coal price in Ukraine may negatively affect Komsomolets Donbassa in the mid term due to the expected liberalization of the coal and energy market. The market prices for coal are on average 15% below state ones, which will force the mine to sell coal at a lower price in order to maintain the competitive ability of Vostokenergo.

Komsomolets Donbassa Mine produces T-grade thermal coal, has its own processing facilities thus allowing them to ensure low ash content in sold products.

Donbass Fuel-Energy Company Ltd (DTEK, Donetsk), controlling Vostokenergo, owns a 94.6% shareholding in Komsomolets Donbassa Mine, the other 5.4% of shares belong to different minority shareholders.