Coal

Coronado to ‘splash cash’ following record quarter

Tue 10 May 22, 1:28pm (AEST)
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Key Points

  • 152% to $US947m increase in group revenue
  • Average coal realised price for the period was $US215 per tonne, up from $US83.3 previously
  • No exploration drilling works were completed in the quarter at the Curragh Complex

Given that the materials sector took the brunt of today’s falls, down -3.72% at noon, it comes as no surprise that Coronado Global Resources (ASX: CRN) was also sold down today (-3.36 at noon) even after announcing plans to splash surplus cash, following a record quarterly result.

Buoyed by strong commodity prices, the Qld and US large-cap coal miner plans to pay $US200m in special unfranked dividends totalling US11.9c per CDI on June 21.

As well as achieving a number of records in the first quarter of FY22, Coronado was also one of the first pure-play coal operators in the world to return to a net cash position of $257m (and available liquidity of $671m at 31 March 2022) following the impacts of covid and a lower price cycle.

Underpinning plans to issue special unfranked dividends were the following highlights:

  • A 152% to $US947m increase in group revenue

  • Net income also growing to a record $US270m, reversing losses in the previous period

  • Quarterly adjusted earnings totalled $US411m, up $US403m on the March 2021 quarter

  • Average coal realised price for the period was $US215 per tonne, up from $US83.3 previously

  • For metallurgical coal, the average price was $US266.5 per tonne, higher than the $US94.3 per tonne in the prior period

  • Due higher royalties, inflationary pressures and operational activities at the Curragh coal mine in Queensland Bowen Basin, costs increased to US$121.5 per tonne sold, from US $83.2

  • March quarter sales volumes for the group were 4.4 Mt, 1.4% higher than December quarter.

Since releasing the March quarter update, the $3.7bn market-cap business has confirmed that merger talks with US coal miner Arch Resources have ended.

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Outlook

The Russia/Ukraine war pushed seaborne met coal prices to the highest levels in history with the PLV HCC FOB AUS price reaching $670/tonne in March.

Coronado expects met coal prices to moderate from their current highs over the course of 2022. Yet due to the ongoing trade constraints from Russia and China, the group expects prices to remain elevated above historical averages.

Overall, Coronado expects met coal demand to continue to be positive in 2022, with improved supply from both Australia and Mongolia moving the market back into some semblance of balance.

Meantime, while limited works were completed on the Mon Valley Minerals (MVM) project in the March quarter, Coronado plans to re-commence core hole drilling, subsurface geotechnical exploration and permitting works later in the year.

While no exploration drilling works were completed in the quarter at the Curragh Complex, additional reserve and gas drilling is also planned for later in the year.

Coronado will hold an Annual General Meeting (AGM) of security holders at 10.00am on 26 May 2022 (AEST).

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Coronado Global Resources: A six month share price snapshot.

What brokers think

Consensus on Coronado is Strong buy.

Based on Morningstar’s fair value of $2.91, Coronado appears to be undervalued.

Base on the brokers covering Coronado (as reported in by FN Arena), the stock is currently trading with 46.2% upside to the $3.14 target price.

Credit Suisse has lifted coking price forecasts 11-75% through to 2026, and the broker’s earnings forecasts for Coronado Global Resources increase 83%, 226% and 325% for the same period.

The broker retains an Outperform rating with the target price increasing to $3.50 from $2.50.

While first quarter earnings didn’t meet Morgans forecast, the broker has materially upgraded its coking coal price assumptions.

Beyond upside risk for dividends, the broker also foresees future ability to fund organic growth/improvement and build reserves for potential M&A.

The broker retains an Add rating and the target price rises to $2.73 from $1.96.

With buoyant met coal prices driving upside, and free cash flow yields increasing to 100% at spot prices from 2023 onward, Macquarie retains an Outperform with the target falling to $3.20 from $3.50.

Written By

Mark Story

Editor

Mark is an award-winning investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics, a diploma in journalism and has completed the Institute of Directors course. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content.

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