• Development capex also to focus on wheels
• Evraz projects CO2 emissions plunge of 20%
Russian mining and steel company Evraz said Feb. 25 its capital expenditure might increase by half this year to $1 billion with a good part of this assigned to three projects covering beams and railway products. Its management stipulated that spending that much is not an objective: the figure represents the amount the company will not exceed.
In 2020, Evraz spent $657 million on capex, compared with $762 million a year earlier, with 70% of the total absorbed by maintenance.
It was initially planned to spend $900 million last year, but in Q2, in light of the pandemic, Evraz revised plans, trying to optimize them to avoid significant risks in the event of negative market developments.
COVID-19 prompted Evraz to postpone by three to four years one of its major development projects – a 2.5 million mt/year thin-slab and coil complex at its Western Siberian Steelworks (Zapsib). This project will remain on hold indefinitely, CEO Alexander Frolov said during a press conference.
For the same reason, the company moved the completion of the reconstruction of the 800,000 mt/year rail and beam rolling mill at the Nizhny Tagil Iron & Steel Works (NTMK) from 2022 to 2023.
This year, most of the development capex is spread over three projects, including the NTMK project that could add 333,000 mt/year of capacity, taking NTMK's total rail and beam capacity to 1.1 million mt/year, once completed in 2023. The steelworks though is mainly focused on making beams, while rail production is the domain of ZapSib, which is capable of making up to 950,000 mt/year of rails.
Evraz is also building a new railway wheel production site in Verkhnyaya Salda, a town in the Sverdlovsk region near Nizhny Tagil. Once it comes online in 2023, it will process blanks from NTMK adding to the 510,000 units/year railway wheel capacity installed at NTMK and currently representing the company's entire capacity for the product.
This new site will cater to several railway wheel markets, but the bulk of its output to be distributed in Russia.
The largest development project that will have the greatest impact on 2021 capex is the ongoing construction of a new US long rail mill at Pueblo, Colorado. This project was not postponed as it is considered strategic and aimed at maintaining the company's market share in the US.
Frolov said Evraz will make a final decision regarding divestment of its coal business – Raspadskaya – at some point this year. If the spin-off is approved, Evraz shareholders will get Raspadskaya shares in direct ownership.
Answering the question about possible assets sales – if any are under consideration – he said the company's portfolio is optimized and the management does not see any assets that could be put up for sale.
ESG plans
On the environmental side, Evraz now plans to reduce its specific Scope 1 and 2 greenhouse gas emissions 20% from its steel segments in Russia and North America by 2030, compared to 2019 levels.
Evraz plans to tackle emissions of all substances, in particular those causing much greater harm to the environment than CO2, including polyaromatic substances, a by-product of coke production.
Total atmospheric emissions from steel production will be reduced by 33% and dust emissions from coal mining by a third – in line with the company's 2030 environmental strategy, still a work in progress.
Also, Evraz plans to recycle half its mining waste by 2030 and utilize 75% of methane (CH4) emitted in the process of degassing carried out during coking coal mining in Russia. It has already started burning methane, but going forward plans to utilize it as fuel for in-house electricity generation.
Most of the measures and projects comprising environmental strategy are interlinked with upgrades of existing production facilities and the company's regular annual capex already makes allowance for these extras, according to Frolov. "I do not think these figures are so material against the backdrop of our total capital expenditures," he said.
Financial performance
Evraz reported an 18% year-on-year decrease in consolidated revenues last year, which totaled $9.75 billion. The reduction was the result of a drop in steel, vanadium and coking coal prices.
Its pre-tax earnings (EBITDA) of $2.2 billion dropped 15%, yet the EBITDA margin expanded to 22.7%, up from 21.8% a year earlier, and net profit grew to $858 million versus $365 million in 2019. As a result, the ratio of net debt to the prior 12 months EBITDA was 1.5 times.
The company generated robust free cash flow of $1 billion and reduced net debt to $3.35 billion, down from $3.45 billion in 2019.
