Small Caps | Jan 30 2025
Following Coronado Global Resources' fourth quarter update, analysts focus on operational improvements and upside from the Mammoth underground deposit.
-Operational improvements in Q4 for Coronado Global Resources
-Ramp-up at Mammoth underground key for costs, highlights Macquarie
-Balance sheet risks weighing on the share price
-Brokers largely Buy-rated, despite some balance sheet concerns
By Mark Woodruff
Following the December quarter operational update by coal miner Coronado Global Resources ((CRN)), broker Morgans sets aside the company's vulnerability to short-term, cyclically driven pricing pressures.
Instead, the broker focuses on Coronado's strength as a volume-leveraged proxy to compelling, structurally driven pricing tailwinds for hard coking coal (HCC) over the medium-term.
A 2025 rebound in steel market fundamentals is key to Morgans' investment thesis for Coronado, along with sound execution by management at the company.
Management anticipates stable near-term Chinese demand fundamentals, contingent on potential stimulus measures, and a substantial boost in US steel demand on an improved economic outlook and potential re-shoring policies.
Coronado is largely a metallurgical coal miner with operations in the Bowen Basin of Australia (Curragh mine) and the Buchanan, Logan and Greenbrier mines in the Appalachian region of the US.
Supplying coal to steel making customers located in the Americas, Europe and Asia, Coronado sells several grades of metallurgical and thermal coal.
Weighing a forecast for minimal free cash flow in 2025 against the deep value at which shares of Coronado are currently trading, Ord Minnett decides the organic growth outlook remains compelling, pointing to an anticipated 23% production lift by FY28.
The 2027 expiry of Coronado's long-term contractual obligation to supply thermal coal to Stanwell Corp should also result in higher realised prices, notes this broker.
Stanwell Corp is a Queensland government-owned entity that operates the Stanwell Power Station. At present, the company pays Stanwell a tiered rebate for coal access.
Coronado is currently ranked outside the top 300 for market capitalisation on the ASX, after experiencing a share price fall to circa 65c from around $2.45 in May, 2022.
December quarter results
Over the December quarter, the company made gains on production and executed on cost improvements, but a metallurgical coal sales mix decline weighed on realised prices, resulting in an expanded net loss for the December half, observes UBS.
Operational progress was evident at the Mammoth deposit at Curragh with the delivery of first coal in December, while the Buchanan expansion performed better-than-expected by UBS, despite a longwall move completed during November.
Costs of US$97/t were -9% lower than the consensus expectation, a fall of -17% quarter-on-quarter, reflecting productivity improvements and a cost reduction program at Curragh. UBS observes inventory builds also had a positive impact on costs.
The Mammoth underground ramp-up is a key near-term catalyst to lower costs, highlights Macquarie.
Run-of-mine (ROM) coal production (i.e. prior to processing) of 6.8mt in the fourth quarter beat the consensus forecast by 4%, but saleable production of 4.0mt and sales of 4.1mt missed by -4% and -6%, respectively.
Goldman Sachs attributes the lower-than-expected saleable production mainly to lower production from the Buchanan mine due to poor geotechnical conditions and a 10-day outage during December.
Curragh production was in line with the analysts' forecast despite the impacts of heavy rainfall throughout the Bowen Basin.
The sales miss and lower proportion of met coal sales at 77% resulted in revenue of US$558m, missing the consensus estimate by -12%.
The lower met coal mix translated to met coal realised price for the group of US$163.2/t, an 81% realisation to the quarterly average HCC index, highlights Bell Botter.
This broker believes quarterly group earnings (EBITDA) were -US$2m, in line with its own forecast, taking estimated earnings to US$108m for 2024.
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