The revitalization of the U.S. coal industry got the shaft, at least from the public markets, after mining company Contura Energy postponed its initial public offering on the Nasdaq Thursday.
Contura, which was to trade under the symbol CTRA, was created out of core assets of Alpha Natural Resources.
Here’s what you need to know.
1. Raising $150 Million Is on Hold
Contura planned to sell 6 million shares between $23 and $27 per share. That would’ve raise $150 million if it priced at the $25 midpoint of the range.
It seems the wide range was an indication of the underwriters having less of a feel of institutional interest than usual. Suddenly coal is a hot-button political issue, but when pricing an IPO the vagaries of politics just add to uncertainties.
The lead underwriters are Citigroup and Jefferies.
Barclays, BMO Capital, Clarkson Plateau Securities and Seaport Global Securities are co-managing the deal.
The underwriters have the option to buy 900,000 more shares at the pricing point for 30 days after the debut.
2. Contura Mainly Mines Steam Coal
Nothing too complex to explain here. It’s a coal mining company.
It mines metallurgic (met) coal, which can be used for steel production, and steam coal.
By the end of the first quarter 2017, the business was 84% steam coal and 16% met coal.
The company has nine underground coal mines, four surface mines and four coal preparation plants and also has a trading and logistics business. The mines are located over three U.S. coal basins.
Contura has 1 billion tons of proven reserves in coal and about 310 million tons of probable reserve.
That “results in an average remaining mine life of approximately 30 years based on our 2016 production levels,” the company said in its SEC filing.
3. Alpha Natural’s Bankruptcy Lenders Hope to Cash In
Contura was created to control assets of Alpha Natural Resources, which went bankrupt in August 2015.
Alpha emerged from bankruptcy in July 2016 and at the same time, Contura, which was created and majority-owned by a group of Alpha’s first-lien lenders, took control of Alpha’s core assets in Northern Appalachia, the Powder River Basin and Central Appalachia.
As a result, Contura the company will not receive any of the money it raises with an IPO.
That money will go to the shareholders that lent money in Alpha’s bankruptcy.
The top five shareholders are Davidson Kempner Funds, Mudrick Funds, Whitebox Funds, 1992 Funds and Bain Funds.
4. Contura Is Profitable
The numbers are difficult to parse because the comparison is between a new company and a larger one that was going bankrupt. But let’s look at the recent top and bottom lines.
Revenue was $509 million in the first quarter 2017, compared with the $612 million in revenue for the last six months of 2016 and $231 million earned by what it calls the predecessor in the year-ago period.
Contura earned $32.3 million in the first quarter of the year.
Its steam coal customers are primarily large utilities and industrial companies in the U.S. and its met coal customers are steelmakers in the U.S., Europe, Asian and the Americas.
About 58% of Contura’s customers were from outside the U.S. in the first quarter of 2017, compared with 19% in the year-ago period.
The company has cash and cash equivalents of $240.6 million as of March 31.
5. Banking on Trump’s Regulation Repeal
Contura is definitely planning on improvement for the coal business as President Donald Trump – who is mentioned 13 times in the S-1 filing – moves to repeal regulations.
“In March, President Donald Trump signed the Executive Order on Promoting Energy Independence and Economic Growth, which aims to reduce regulatory restrictions intended to curb the production and use of fossil fuels,” the company said in its filing “An important part of this Executive Order directs the Environmental Protection Agency to commence regulatory proceedings to rescind or revise the Clean Power Plan.”
“Potential repeal or revision of the Clean Power Plan and other potential actions from the current Administration should ease the pressure on coal-fired utilities to retire units prematurely, arguably increasing the life of the current domestic coal fleet,” Contura said.
Even in listing risks to its business, like global initiatives to avert climate change or carbon emissions, it notes the president’s withdrawal from the Paris climate summit agreement, which “could results in additional firm commitments various nations with respect to future (greenhouse gas) emissions.”
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