Coronado Caught Out By Softer Coal Price

More bad news from US – Australian listed coal miner, Coronado Global Resources which has emerged as one of the biggest IPO flops in the past year.

The company listed on October 23 last year but never reached the issue price of $4 – topping out at $3.80. Since then it has been all downhill with the shares hitting a new all-time low of $2.11 yesterday after a downgrade to 2019 earnings (the company has a calendar-based financial year).

The shares lost around 14% of their value in hitting that low before bouncing to end the day at $2.31 – down 5%.

The reason was the downgrade of around 8% in the forecast earnings before interest, tax, depreciation and amortisation (EBITDA).

Directors blamed the recent fall in coking coal prices for the cut to the estimated EBITDA range to $687 to $737 million (A$995 to $1,068 million).

And the company warned that earnings could dip even lower with the possibility of further falls in coking coal prices in coming months.

“The revised EBITDA guidance range is based on various assumptions, including a spot price of approximately $140 per tonne for the remainder of the year. This is below the spot price of $160 at the time of the Half Year Results announcement on 5 August 2019,” directors said in yesterday’s statement.

“The revised guidance also assumes higher than normal inventory levels in the US, for coal being reserved in order to generate higher margins in the event there is a recovery in prices in the short term.

“Coronado’s exposure to fuel price is fully hedged, and therefore, the recent spike in oil prices will not affect the earnings guidance. These revised assumptions result in a reduction of $50 million in EBITDA to the lower end of the original guidance range of $737 to $807 million.

CEO Gerry Spindler said, “We can control most things in our business, but we cannot control global market pricing for metallurgical coal. The recent fall in spot prices, if sustained, is likely to adversely impact EBITDA.

“In the short term, we see the possibility of prices remaining at lower levels, with the potential for further deterioration in light of the uncertainties and weakness in the global macro-economic environment.”

Coronado claims it has “achieved significant operating efficiencies at its Curragh mine since its acquisition in March 2018 and will continue to benefit from reduced operating costs.”

“The Buchanan mine also ranks amongst the lowest cost metallurgical mines in the US and its management team has a track record of operating these assets very efficiently. With a competitive and low-cost operating structure, low gearing and suite of highly sought-after, quality metallurgical coal products from the US domestic and global seaborne markets, Coronado remains optimistic for its long-term growth prospects.

“Given our low-cost operating structure and balance sheet capacity, we are better positioned than most of our peers to weather a softer price environment without the need to reduce critical investment in our assets. Our disciplined approach to managing our balance sheet means we can also tolerate lower prices for longer and pursue accretive acquisitions if and when they arise.

“While the US trade negotiations and the weakness in global macro-economic factors are having material impacts on near term prices, we believe the fundamental factors that support continued growth in demand for high-quality metallurgical coal in the long term remains unchanged,” Mr. Spindler said.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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