Coal

Stanmore returns after transformational acquisition and 40% spike in coal price

Mon 07 Mar 22, 10:54am (AEST)
A close up photo of coal fragments heaped together
Source: iStock

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Key Points

  • Stanmore successfully raises $656m at $1.10 per new share
  • Proceeds will be used to fund the BHP Mitsui Coal acquisition
  • Stanmore will emerge as one of the world's largest met coal producers

Stanmore (ASX: SMR) has returned after a two-day trading halt to finalise a massive $694m capital raising to fund its acquisition of BHP (ASX: BHP) Mitsui Coal assets.

The company's stock is up 44% in early trade.

During the two-day halt, coal prices have abruptly spiked 40% from US$300 a tonne to US$420 a tonne amid concerns about Russian supply.

NewCastle Coal futures March 22 deliver
NewCastle Coal futures March 2022 (Source: Barchart)

Stanmore shares are now absorbing both the transformational acquisition and surging coal prices.

Acquisition in a nutshell 

Stanmore is on track to become one of the largest global producers of metallurgical coal, jumping from 2m tonnes of production in FY21, to a forecasted 5.9m to 6.5m in the first-half of calendar year 2022.

Stanmore becomes one of the world-s largest coal producers
Source: Stanmore Investor Presentation, 3 March 2022

Highlights the acquisition include:

  • Mitsui Coal consists of four mines and three wash-plants within a 50km radius

  • Two operational mines which produced approximately 8.8m tonnes of coal in FY21

  • Purchase price for the transaction comprises:

    • US$1,100m payable on completion 

    • US$100m payable six months post completion 

    • Up to US$150m based on revenue sharing mechanism

    • Transaction expected to be complete in the second quarter of 2022

To fund the acquisition, Stanmore successfully raised $656m at an offer price of $1.10 per share. This represents a 12% discount to the stock's last close price of $1.25.

Coal outlook

Stanmore said that the market outlook for met coal remains strong, buoyed by factors including:

  • Production shortfalls in India and South East Asia

  • Limited supply by scarcity of deposits, capital constraints and regulatory risk

  • Indian demand forecast to jump due to continued installation of blast furnaces (for steel production)

  • Substitute technologies unlikely to mature or scale in the short-to-medium term

Wood Mackenzie coal outlook
Source: Stanmore Investor Presentation, 3 March 2022

Stanmore said that the key drivers of coal was steel production, whereby one tonne of steel requires 0.7 tonnes of met coal.

The global focus towards renewable energy is surprisingly a tailwind for coal consumption. Stanmore pointed out that a single wind turbine requires 170 tonnes of met coal.

Stanmore said that the company could delever its debt position quickly if the current coal price environment persists.

Stanmore Net Debt EBITDA
Source: Stanmore Investor Presentation, 3 March 2022
Stanmore SMR Chart
Stanmore 12-month price chart

 

Written By

Kerry Sun

Finance Writer & Social Media

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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