Delivering on our strategy
We believe that our focus on efficiency, safety, continuous improvement and value growth will help us fulfil our mission and achieve our targets.
Our mission is to fuel the world by producing coal safely and sustainably, helping to ensure global energy security while delivering value to all our stakeholders.
Safety and efficiency
We are a results-oriented company. As such, we are always looking to improve efficiencies and maximise opportunities.
But our returns must never compromise safety. Coal mining has inherent high production risks, and we apply every effort to mitigate them. Safety is embedded in all our processes and is a non-negotiable part of everyday life across the business.
Professionalism and cooperation
Professionalism for us means making an active contribution to the company and supporting colleagues. Cooperation is the ability to listen, understand and respect each other.
As part of our commitment to corporate responsibility and professionalism, we comply with all applicable laws and regulations, build respect into all our interactions with stakeholders, and constantly evolve in order to maintain our high level of performance.
Stability and development
The stability of our company is underpinned not only by our financial and operational strength, but by the skills and commitment of our employees. SUEK puts the welfare and development of its people above all else. We aim to offer fair remuneration, good benefits and decent working conditions, thereby ensuring that our employees can operate to the very best of their abilities.
Continual development is also crucial to our success. We progress by implementing new technologies, improving working conditions, delivering high-quality products and ensuring the safety, health and productivity of our employees.
We seek to have a positive impact on the world around us. We take seriously our commitments to society and the environment, and to the communities and regions in which we operate, and follow best practice in social and environmental responsibility. Company interaction with local authorities and public and business associations is focused on the long term, and on mutually beneficial interests and objectives.
Securing our leading position in the industry is an important goal for SUEK. We continually look for opportunities to reinforce competitive advantage, expand our market share and develop a socially responsible business. To meet these objectives, we have identified five strategy pillars.
|FOCUSING ON EFFICIENT GROWTH||IMPROVING OPERATIONAL EFFICIENCY AND PRODUCTIVITY||MAINTAINING A ROBUST BALANCE SHEET||ACHIEVING HIGH SAFETY STANDARDS||COMMITTED TO SUSTAINABLE DEVELOPMENT|
Achieving balanced management of the reserves portfolio.
Increasing production of high-quality and in-demand coal products.
Strengthening our position in the Asia-Pacific region and retaining our presence in the Atlantic market.
Retaining our position as the largest coal producer and supplier of thermal coal in Russia.
Increasing sales in metallurgical and sized coal in premium markets.
Improving the efficiency of production facilities and processes.
Developing washing capacities to improve coal quality.
Developing the company's rail infrastructure and fleet.
Ensuring the efficient management of port facilities and expanding our ship-loading capacity to maximise exports from Russia.
Sustaining profit against the cyclical nature of business.
Maintaining a conservative financial policy.
Avoidance of accidents and fatal accidents.
Developing social infrastructure in the regions where we operate.
Reducing adverse environmental impacts.
Our objective is to increase our supply and strengthen our presence in high-margin markets, particularly in the Asia-Pacific region. To this end, we are growing the share of washed coal within our product portfolio, developing sales of premium sized coal and increasing our trade in semi-soft and hard coking coal with international and Russian metallurgical customers.
Our investments in the development of new coal deposits are targeted at the most efficient projects. We also expect to maintain synergies through our association with the Russian power industry by signing long-term contracts with energy producers.
Q: The media often publishes loud headlines about ‘the end of coal’. Yet SUEK continues to increase its output. What can you say about this?
A: The world’s energy consumption is expected to grow 60% in the next 20 years. Coal is forecast to remain a reliable and affordable source of fuel. China, for instance, launches construction of a new coal-fired power plant every week. Almost 600 coal-fired electric power plants are at the planning and construction stage in Asia and Africa. And most of the new generation require HELE-type coal. In recent years, we made significant investments, over $400 m, into clean coal production, including washing plants to satisfy the growing demand for high efficiency and less emitting coal.
Achieving balanced management of the reserves portfolio
The company maintains a sustainable, high-quality reserves portfolio of thermal and coking coal.
Average life of hard coal deposits
Our goal is to maintain a sustainable portfolio of high-quality thermal and coking coal in order to satisfy market demand and customer requirements.
We will continue to explore and monitor attractive coal deposits.
Increasing production of high-quality and in-demand coal products
SUEK’s total production exceeded 100 Mt for the second time in the company’s history. Hard coal mining increased by 1% to 72.2 Mt.
In 2017, we developed new hard coal sites to replace depleting capacities. These included the Magistralny area in Kuzbass, Pravoberezhny open pit in Khabarovsk and Nekkovy open pit in Primorye.
We plan to further increase the output of high-quality products through key investment projects, with a focus on production and washing. Projects include:
- Developing the mining facilities in the Khabarovsk region: the Severnaya mine, Bureinsky open pit and Pravoberezhny open pit (bringing the capacity of the latter up to 1 Mt in 2018 with further expansion to 3 Mt);
- Bringing the capacity of Magistralny area up to 3.8 Mt;
- Bringing the output of the Yalevskogo mine to more than 10 Mt;
- Increasing production at the Nikolsky open pit (Buryatia) by 50% to 3 Mt;
- Bringing the Nekkovy open pit capacity to 0.5 Mt;
- Expanding mining operations at the Vostochno-Beisky open pit (Khakasia) and preparing to bring its production capacity to 5 Mt per year;
- Production optimisation at the Apsatsky open pit.
Strengthening our position in the Asia-Pacific region and retaining our presence in the Atlantic market
In 2017, SUEK’s deliveries to Asia increased by 2% year-on-year to total 32.7 Mt. Coal sales to the premium markets of Japan and South Korea increased by 9%.
Our 2017 sales to the Atlantic market totalled 23.7 Mt, which is a 20% increase compared to 2016.
We also achieved higher coal sales through our own and partner distribution networks in Poland, China, Turkey and the Baltic states. We continued the development and efficiency enhancement of distribution networks in these countries.
We intend to enhance our presence in Japan, South Korea, Taiwan and premium markets in South-East Asia.
We plan to increase direct sales by further developing our distribution networks in China, South Korea, Poland and the Baltic states.
Retaining our position as the largest coal producer and supplier of thermal coal in Russia
We remained the leading thermal coal supplier in Russia, with a market share of 41%.
We plan to maintain our leadership in the Russian market and to seek new opportunities to increase sales to Russian customers.
We intend to continue selling coal to the major Russian energy producers – SGK, Unipro, Gazprom Energoholding, TGK-14, DGK and others.
Increasing sales of metallurgical and sized coal in premium markets
International sales of metallurgical coal grew to 2.9 Mt in 2017, while sales in the Russian market exceeded the level of the previous year by more than 25% to total 0.5 Mt.
Our sized coal sales to the international market in 2017 totalled 4 Mt, a 41% increase year-on-year that was due to the development of our distribution system in Poland.
We plan to develop our presence in the metallurgical coal export market through the sale of Kirova mine concentrate and Apsatsky open pit coal, and by increasing supplies to customers in this sector in Asia.
We also aim to increase sales of sized coal to international markets, mainly to Poland, China and Turkey.
We maintain efficient, low-cost coal production by refining our operational processes and modernising our equipment and production units. We will continue to improve internal management processes with the express intention of boosting the overall profitability of the business.
Q: Infrastructure constraints have recently limited the growth of port capacity. What are you doing to address this?
A: The recent development of our ports has indeed outpaced the development of the railway infrastructure leading to them. In line with the stable demand in premium markets, we continue to develop our port capacities and access infrastructure. For example, the development of access railway infrastructure of the Vanino Bulk Terminal has helped us to increase its capacity to 24 Mt per year. We hope that with the development of the BAM, we can further increase our shipment volumes through Vanino. In 2017 we also extended the neck of the Murmansk station near the Murmansk Commercial Seaport, which has helped to increase its capacity by more than 10%.
Improving the efficiency of production facilities and processes
The company achieved productivity growth in its key production processes compared to 2016:
- Productivity of production personnel increased by 9%;
- Coal washing grew by 12%.
In total in 2017, SUEK set 19 world production records, including the monthly coal production record of 1.567 Mt at the Yalevskogo mine, where the first 400 metre longwall was launched.
SUEK plans to continue the introduction of advanced underground mine layouts, as well as the upgrade of equipment in order to increase the length of three more longwalls to 400 metres (at the Yalevskogo and Taldinskaya-Zapadnaya 2 mines in Kuzbass and the Severnaya mine in the Khabarovsk region).
We plan to increase the load on excavator and truck units to ensure output growth and save investment costs.
Developing washing capacities to improve coal quality
The greater efficiency of our washing plants allowed us to increase our washed-coal output by 12% year-on-year to 41.9 Mt and to boost the share of washed coal from 52% to 58%.
At the Polysaevskaya mine washing plant, we upgraded the preliminary classification system of raw coal, enabling us to increase the plant’s capacity by 38%.
SUEK plans to further increase washing output and labour productivity at the company's washing plants.
In particular, in 2018, we intend to build a new module at the Tugnuisky washing plant in Buryatia, increasing its washing capacity by more than 65% to 14 Mt per year. This will enable us to wash all coal coming from the Tugnuisky and Nikolsky open pits.
In Khakasia, in parallel with increasing capacity at the Vostochno-Beisky open pit, we plan to start the construction of a washing plant with a capacity of 4 Mt per year.
We also plan to launch a flotation unit at the Kirova mine washing plant, which will increase its yield of clean coal from 89% to 93%.
Developing the company’s rail infrastructure and fleet
At the end of 2017, the railcar fleet under SUEK’s management totalled 34,293 units (the fifth highest of all Russian operators), including 15,664 higher-capacity cars.
We continued the development and introduction of new-generation railcars, designed according to SUEK's specifications.
The company also continued to collaborate with Russian Railways in the following areas:
- Improving railcar turnover along SUEK's routes;
- Eliminating constraints on infrastructure and increasing the capacity of connecting stations and their approaches in Kuzbass, Khakasia and Murmansk, and at Nakhodka-Vostochnaya and Toki stations in the Far East. This will ensure we can supply coal to customers in line with our strategy up to 2031 and beyond.
We aim to increase the railcar fleet under management to 47,000, including expanding the fleet of higher-capacity railcars to 27,700 in 2018-2019.
We will continue to implement a technology developed in cooperation with Russian Railways to improve the railcar turnover along SUEK's routes.
We will continue our interaction with Russian Railways and state authorities to attract investments for developing priority sections of the national rail network infrastructure and approaches to ports that are used by SUEK. The first of these will be access routes to the ports in Vanino, Murmansk and Nakhodka.
We plan to increase the capacity of our loading stations as production output increases.
Ensuring the efficient management of port facilities and expanding our ship-loading capacity to maximise exports from Russia
In 2017, the company increased its share in Murmansk Commercial Seaport to 84.9%In January 2018 SUEK increased its holding in Murmansk Commercial Seaport to 97.1% of the voting shares. and continued to implement the development programme:
- Installing new cranes;
- Further refurbishing the first cargo district, including the construction and installation of stationary dust-suppression systems;
- Completing the reconstruction of the southern neck of the Murmansk railway station;
- Building treatment facilities at the second cargo district;
- Undertaking other investment activities to reduce impact on the environment.
In terms of developing auxiliary businesses of the Murmansk Commercial Seaport, bunkering and coal-cleaning services were provided, supplemented by the supply of fresh water to ship crews.
Shipment through Vanino Bulk Terminal in 2017 totalled 19.5 Mt. During the year, we completed the first stage of modernising the cleaning and sizing equipment at Vanino Bulk Terminal. This significantly reduced impurities in coal shipped to premium markets – down to the designed 60-80 kg per Panamax (70,000 tonnes).
We continued our programme to increase the capacity of Maly Port to 4 Mt.
SUEK also improved the quality of coal cleaning and crushing at other ports.
SUEK plans to continue upgrading Maly Port in order to increase its capacity to 4 Mt per year. We plan to perform a full range of works on berth strengthening and dredging during 2018-2019.
The company will continue developing Murmansk Commercial Seaport to reach the target coal-shipment capacity of 15 Mt. The development programme also includes a long-term environmental programme based on international practices to introduce best available technologies.
We will also focus on effective human-resource management at Murmansk port, improving employee satisfaction and engagement, achieving higher productivity, optimising organisational headcount and developing outsourcing practices. We will further develop auxiliary businesses at the port, including bunkering, towing, agency services and coal cleaning.
We will analyse opportunities to further upgrade the capacity of Vanino Bulk Terminal to reach the shipment capacity of 30+ Mt per year depending on the development of the railway infrastructure leading to the port.
We plan to carry out further activities to improve the quality of coal-cleaning and crushing at our ports in order to lower the content of ferrous inclusions to 10-40 kg per Panamax (70,000 tonnes) and to produce sized coal of 49 mm.
Q: How does SUEK maintain its target covenant despite fluctuations in global coal prices?
A: SUEK pursues a conservative financial policy. A flexible investment plan allows us to make decisions on project delivery depending on market conditions. In 2016, when prices reached rock bottom at the beginning of the year, we focused exclusively on the most economically efficient investment projects. Thanks to 2017’s favourable market environment, we were able to expand our investment programme by almost 40% over 2016. However, we continue to keep a conservative approach and to target stable qualitative growth. This enables us to keep the net debt to EBITDA ratio within the set target.
Q: In the light of banks’ increasingly stringent environmental responsibility policies, is it becoming more difficult for SUEK to attract the necessary financing?
A: Of course, the surge in negative attitudes towards the coal industry did not go unnoticed. However, SUEK is one of the most socially responsible companies in Russia. Every year, we invest in a variety of projects aiming to minimise not only the environmental impact of our operations but also that of our product. Moreover, despite the fact that SUEK is a non-public company, we follow the best global practices in the field of disclosure, providing accurate and reliable information to our current and potential investors. In my opinion, the transparency of our company is a guarantee of trust for our financing partners.
Sustaining profit against the cyclical nature of business
The 6% increase in sales volumes, together with growing prices, enabled SUEK to boost revenue by 42% to $5,693m.
A favourable pricing environment and cost control contributed to EBITDA growth by more than 50%, with the EBITDA margin increasing to 27%.
In 2018, the company plans to sustain its profitability by maintaining cost controls and focusing on high-margin markets.
Maintaining a conservative financial policy
Despite 2017’s significant rise in investments, our growing EBITDA meant that the Net debt/EBITDA ratio fell to 2.0x. This is in full compliance with the requirements of SUEK's credit facilities.
In 2018, we plan to maintain the optimal ratio of Net debt/EBITDA within the target KPI.
All SUEK’s facilities comply with leading international standards in occupational and industrial safety. Our fundamental aims are to reduce injury rates and prevent fatal accidents.
Q: Which KPIs for employees and managers are related to industrial safety?
A: SUEK's incentive system stipulates that full payment of remuneration to line managers and senior managers is made only if the set industrial safety requirements are met. A universal criterion for assessing performance in this area is the integrated Lost Time Injury Frequency Rate (LTIFR) index. We study and follow the best global practices for monitoring and reducing this indicator. If the result is not within the established limits, managers do not receive annual payments in full. At the same time, those managers who are directly responsible for monitoring and implementing safety standards can see a reduction of up to 50%.
Health and safety KPIs are also incorporated within our project-motivation system, which covers programmes aimed at enhancing business process efficiencies, the delivery of large-scale investment projects and productivity improvements. For all such projects, safe operation is a must. If safety standards might be jeopardised by suggested improvements, projects are revised and payments to the managers responsible are reduced or withheld.
Avoidance of accidents and fatal accidents
During 2017, SUEK further developed its monitoring and safety alert systems.
We added new control subsystems, including dynamic phenomena, local ventilation fans, fire water supply, pumping stations and power supply within our mines.
As part of our staff development activities in 2017, we further improved computerised support for our training programmes and examination terminals.
Regrettably, there were three fatal accidents at our facilities during the year.
We will continue to promote our occupational safety culture, including zero tolerance to accidents, across all SUEK's units.
We plan to deliver additional personnel training programmes to help reduce the number of accidents at our sites.
SUEK will continue investing in the development of monitoring and safety alert systems.
Our aim is to contribute to global energy security by producing coal safely and sustainably while also delivering value to all our stakeholders.
Our environmental programmes are designed to minimise any negative impacts our business might have. SUEK also seeks to sustain its position as one of the most attractive employers in the Russian mining industry, primarily through the quality of our employee training and development programmes. Through ongoing investment in environmental, public, educational and social projects, we aim to improve quality of life in the communities where SUEK operates.
Q: In 2017, SUEK adopted a new environmental strategy. What is the new approach?
A: The new environmental strategy goes beyond the traditional measures aimed at minimising the emissions linked to our operations as we seek to reuse and recycle as much emissions and waste as possible at all stages of production. For example, in pursuing our aim to decrease greenhouse gas emissions, we capture mine methane, and we reuse it in our power stations to provide electricity for our production facilities. We also do not limit ourselves to the minimum specified protective measures. As such, we participate in integrated biodiversity monitoring with a view to further developing cooperation programmes for identifying and preserving rare and endangered plants and animals, ensuring their security and favourable conditions for their survival and reproduction.”
Developing social infrastructure in the regions where we operate
During the year SUEK provided 33,583 jobs and paid $310m taxes to local, regional and federal budgets. We continued to collaborate with regional and municipal governments to develop social and educational infrastructure in the communities where we work.
SUEK delivered 150 social and charitable projects in the regions where we operate, and community investment totalled $22m.
SUEK delivered a number of new social, business and combined social and business projects. The number of new organisations contributing to community development (’growth points’) increased by 8% year-on-year to 71. The number of people benefiting from these projects grew to 48,000. This 7% increase was achieved thanks to the active involvement of local populations in social entrepreneurship programmes.
We will continue our long-term commitments to developing social infrastructure and supporting local communities in the regions where we operate.
We will also continue to invest in key public and social projects.
Reducing adverse environmental impacts
In 2017, we adopted a new environmental policy based on the environmental legislation of the Russian Federation.
Key environmental projects included the design and construction of water treatment facilities, measures to reduce greenhouse gas emissions and land rehabilitation.
- The construction and reconstruction of water treatment facilities in Kuzbass (Yalevskogo, Taldinskaya-Zapadnaya 1 and Rubana mines), at Urgal and in Krasnoyarsk (Berezovsky open pit);
- Commissioning of fog-generation equipment at the Apsatksy open pit;
- The purchase and installation of a dedicated waste disposal unit at the Kharanorsky open pit;
- Measures to reduce production and consumption waste at SUEK's facilities (involving the replacement of equipment containing mercury with LED devices in order to generate less Class I waste);
- Financing nature protection activities at Lake Baikal and nature reserves;
- Supporting environmental education projects, and cleaning and landscaping territories with the involvement of local communities.
We also installed high-performance equipment at Vanino Bulk Terminal to reduce its impact on the environment.
SUEK implemented a comprehensive environmental programme at Murmansk Commercial Seaport, making a total investment of $20m to minimise the port’s impact on the environment.
We continued to develop our washing capacities, which resulted in reduced emissions during the transportation and use of our products.
SUEK aims to minimise its environmental impact by implementing appropriate programmes, including projects to reduce methane emissions and constructing treatment facilities.
We will continue to implement energy saving schemes by introducing automated energy management systems. This will enable us to monitor and control energy consumption linked to mining equipment, and ultimately to decrease consumption and emissions.
We will also proceed with the development of our coal washing facilities to enhance the calorific value of our products, which reduces emissions during coal transport and usage.