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. Last Updated: 07/27/2016

Belon Confident on Debt If Coal Prices Don't Drop

Coal maker Belon has agreed to refinance most of its 9 billion rubles ($270 million) of short-term debt and can keep up repayments at current coal prices.

"We are not getting hysterical over short-term debt," CEO Andrei Dobrov said in an interview Thursday.

The Novosibirsk-based company, in which Magnitogorsk Iron & Steel Works and Dobrov have 41 percent stakes, repaid 1.8 billion rubles on bank loans between November and April 1, he said. Belon is also seeking as much as 5 billion rubles of state-backed loans to repay 3.5 billion rubles of bonds.

Belon, aluminum producer United Company RusAl and steelmaker Evraz Group are among Russian commodity producers that have struggled to repay borrowings after prices plunged. Belon forecast a fourth-quarter loss after demand from steelmakers for coking coal plummeted and prices for thermal coal, used by power stations, fell 50 percent.

"Details of the refinancing of the company's short-term debt could become a strong trigger for its stock and bonds," George Buzhenitsa and Marat Gabitov, analysts at UniCredit, wrote in a research note Friday. They predicted a "mildly positive" market reaction to Dobrov's comments.

Belon rose 3.2 percent to 5.49 rubles in Moscow trading, paring a gain of as much as 4.7 percent. UniCredit has a "hold" rating on the shares.

Dobrov said Belon might break even in 2009. The company contracted most of its thermal coal output for this year at $68 to $72 per ton on a so-called free-on-board basis, he said.

Belon will sell as much as 260,000 tons of washed coking coal per month in the first half at $55 per ton on a so-called ex-works basis, Dobrov said. The company predicts that sales may rise to 300,000 tons in the second half.

Coking coal for Russian steelmakers may rise by $10 per ton after a better-than-expected settlement between Australian mining company BHP Billiton and Tokyo-based Nippon Steel, he said. BHP and Nippon agreed to coking coal prices of $128 to $129 per ton, two industry executives with knowledge of the deal said. The global benchmark price in 2008 was a record $300 a ton.

Magnitogorsk, or MMK, will buy about 1.7 million tons of coking coal from Belon this year, Dobrov said. Belon is returning to quarterly supply contracts with its Russian customers, which also include Novolipetsk Steel. It switched to monthly contracts after demand plunged in the fourth quarter.

Belon plans to export about 15 percent of its coking coal output this year, Dobrov said.

The coal producer's net debt was about 14 billion rubles as of Jan. 1, he said. The ruble has fallen 42 percent against the dollar in the past 12 months and 21 percent against the euro.

Short-term debt has dropped "significantly" from June 30, when it was 9 billion rubles, after repayments and refinancing agreements with banks including VTB, Gazprombank and TransCreditBank. Belon is in talks with lenders including VTB for a loan over at least two years to repay bonds.