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Coronado IPO’s Narrowed Down Price Range

  • October 19, 2018 06:44 AM AEDT
  • Team Kalkine
Coronado IPO’s Narrowed Down Price Range

Founded in 2011, Coronado Global Resources is one of the largest producers of high-quality metallurgical coal which owns a portfolio of operating mines and development projects, including the Curragh complex located in the prolific Bowen Basin of Queensland, Australia. Coronado is at the forefront of the metallurgical coal industry and it is well positioned to capture the expected growth in steel demand, particularly from emerging economies in Asia.

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The company issued its prospectus on 24 September 2018 and the offer was opened on 2 October 2018. The final price will be announced on 22 October and the company is expected to commence its trading on ASX on 23 October 2018. Coronado Global Resources were planning to raise $1.16 billion to $1.39 billion at $4 to $4.80 a share, or 3.7-times to 4.4-times of forecasted 2019 financial year profit. But now they have narrowed the range between $4 and $4.20

As per the prospectus of the company, the company’s dividend policy is to distribute between 60% and 100% of free cash flow. However, the Company intends to pay out 100% of free cash flow relating to the period from Settlement to 31 December 2019. Free cash flow is defined as net cash from operating activities less capital expenditure, acquisition expenditure, amounts reserved for capital expenditure and acquisition expenditure and amounts required for debt servicing. The management team of the company is having a successful track record building and operating coal mining operations in Australia, the US and globally, including driving operational efficiencies. Energy and Minerals Group (EMG) currently owns the majority of Coronado Coal and it is behind the $1.4 billion raising. EMG is planning to retain 69 percent of the company until February 2020.

Coronado’s ability to receive payment for coal sold and delivered is dependent on the continued contractual performance and creditworthiness of its customers and counterparties. If deterioration of the creditworthiness of Coronado’s customers and counterparties occur, or if they fail to perform the terms of their contracts with Coronado, Coronado’s business could be adversely affected. For certain customers, Coronado requires the provision of a letter of credit as security for payment. The inability of key customers to procure letters of credit (due to general economic conditions or the specific circumstances of the customer) may restrict Coronado’s ability to contract with such customers or result in fewer sales contracts being executed, which could materially and adversely affect Coronado’s business, operating and financial performance.

Approximately 64 percent of Coronado’s 2017 sales by revenue was with its largest seven customers. Although Coronado’s sales are under term contracts ranging from one year to up to five years (for the Australian Operations), these contracts may expire, may not be renewed or may be renewed on terms less favorable to Coronado. Moreover, the customers may default on their obligations or decrease the amount of coal purchased from Coronado and Coronado may be unable to find other customers to purchase such lost volume, which may adversely affect Coronado’s business, operating and financial performance of the company.

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