With energy markets at or near record highs we take a closer look at one of the stocks under our coverage – TerraCom Resources (ASX: TER).
It has been an incredibly busy 6 months for the company as they have enjoyed an unprecedented thermal coal market – a confluence of underinvestment in traditional energy supply as well as the unfortunate events in the Ukraine
TER’s Blair Athol thermal coal mine in Queensland is currently driving the company’s cash flow and profitability to such an extent that they have paid down over $140 million Euroclear bond debt in less than 6 months leaving the company nearly debt free.
Further to the paydown of the bond, the company announced on 10th June that OCP Asia, the holder of a US$20 million convertible note had decided to convert the note to approximately 39.9mill ordinary shares. The conversion of that note to ordinary shares will result in approximately AU$27million in additional cashflow that will not be required to service the note,
The outlook for future coal shipments looks incredibly positive with demand firmly outstripping supply. TER had already secured a US$60 million prepayment for coal delivered into a single North Asian client before announcing today that they have reached an offtake agreement for the delivery of up to 1.25 mill tonnes to a long term Japanese trading partner over 13 months – with pricing linked to the global COAL Newcastle Index. Announcements like this underscore the global long term concerns over thermal coal supply.
This strong forward sales performance underwrites what the company has been signalling with regard to the resumption of dividends. In a 10th June company update, management indicated the possibility of a 10c dividend which would represent in excess of 13% on the current share price.