Severstal has announced its capital investment program for 2020.
Severstal plans to invest approximately 110.5 billion rubles in 2020, focusing on the key areas of the company’s updated strategy as disclosed during its Capital Markets Day in November 2019 – providing a superior client experience, maintaining cost leadership and embracing new opportunities. However, as previously announced, should the market situation become less favorable, the company maintains the flexibility to reduce our planned capital expenditure by up to 30-40%, by postponing those projects that are the lowest priority.
Severstal will invest approximately 73.4 billion rubles into its Russian Steel division in 2020, of which 56.4 billion rubles will be allocated to development projects.
The most significant projects in 2020 will be the construction of the new Blast Furnace No. 3 (expected to commence operations in 2020), the Coking Battery No. 11 (to be launched at full capacity in 2022, replacing batteries Nos. 8 and 9) and the Flat Steel Production Development Program, aimed at improving the company’s product mix. All of these projects involve the use of cutting-edge technologies, which will ensure the company maintains highly innovative and efficient production processes as well as best-in-class environmental performance.
Severstal Russian Steel will invest 17 billion rubles in maintenance, environmental and health and safety projects in 2020.
Severstal will invest approximately 30.9 billion rubles in its Resources division in 2020, of which 12.7 billion rubles will be invested in asset development.
One of the main investment areas within Severstal Resources is the development of the Yakovlevskiy mine, which will receive investment of 6 billion rubles in 2020. This will enable the company to have increased its production capacity to 5 million tons by 2023.
Other significant investment projects include restoring production volumes at Vorkutaugol, where the company is planning to increase production of coking coal concentrate to 6 million tons by 2023, the construction of a conveyor belt for run-of-mine transportation at the Tsentralniy pit, and increasing pellet quality by introducing lime hydrate at Karelskiy Okatysh.
Alexey Kulichenko, CFO of Severstal, commented: “Severstal has launched a major corporate transformation program, which is already allowing us to be one of the most effective steel companies globally. Therefore, most of our capital investment program will fund development projects focused on achieving a significant long-term cost advantage in basic steel products, offering our clients unique, complex solutions, growing our steel volumes, and improving our vertical integration. Severstal will continue focusing on high return projects (minimum internal rate of return of 20% for every investment project). At the same time, taking into account the extreme volatility of today’s markets, we prefer to maintain a flexible approach towards our capital investments and, should the market situation become less favorable, we could potentially cut up to 30-40% of our planned CAPEX, postponing our lower-priority projects to guarantee our financial stability. I would also like to remind our investors that, in order to maximize investor value, Severstal will be using Adjusted FCF to calculate dividends during the intensive stage of our investment program. Any CAPEX that exceeds the base-line level of $800m will not be taken into consideration when determining the level of the dividend payout.”
The amounts are subject to adjustments dependent on FX changes. The majority of the company’s expenditure in 2020 will be in rubles. (MetalInfo/Ukrainian metal)