Company Overview: Coronado Global Resources Inc. (ASX: CRN) is a leading international producer of high-quality metallurgical coal with a portfolio of operating mines and development projects in Australia and United States of America. The company was listed on the ASX on 23 October 2018. CRN’s coal supports the manufacturing of everyday steel-based products that enrich lives around the world. The company’s management team has a proven track record of operating and optimizing coal operations in Australia, U.S., and globally.

CRN Details

Financial Growth Backed by Production Performance & Increased Sales: Coronado Global Resources Inc. (ASX: CRN) is a global producer, marketer and exporter of a full range of metallurgical coal products. As on 3 February 2021, market capitalisation of the company stood at ~A$1.79 billion. CRN is a core feedstock supplier for leading steel producers across a range of global markets. The company has a portfolio of operating mines and development projects in Queensland, Australia, and Pennsylvania, Virginia and West Virginia in the United States. CRN has a track record of making value accretive acquisitions, driving production growth and increased sales from its unique portfolio of assets. During 2015 to 2019, the company’s revenue grew at a CAGR of 76.62%. During the same period, the company also witnessed significant improvement in bottom-line, rising from a net loss of US$55.2 million in 2015 to a net profit of US$305.5 million in 2019.

Revenue and Net Income Trend (Source: Refinitiv, Thomson Reuters)

CRN is currently well placed to reduce its operating and capital expenditure costs as well as to pursue alternative initiatives to support liquidity. At its Curragh operations, it is focused on reducing operating cost base by curtailing overheads and development expenditure, and by reducing spending on consumables. In the United States, the company’s Logan operations are scaling up the production to meet improving demand. In addition, the segment seems well-positioned to further increase production quickly as the market continues to recover to pre-COVID-19 demand levels.

H1FY20 Highlights: For the half-year ended 30 June 2020, the company reported total production of 8.0Mt, down by 2.4Mt on the previous corresponding period (pcp), impacted by temporary suspension in January 2020 at the Australian operations and idling of US Operations. ROM production for H1FY20 stood at 11.9 Mt, down 28.7% compared to HY19. Total sales volume for H1FY20 stood at 8.3Mt and total revenue stood at US$713.7 million. The company’s gross operating cost for H1FY20 stood at US$665.1 million, down by 18% on pcp. In the September 2020 quarter, the company witnessed improvement in its operational performance as it reported total saleable production of 4.6Mt, up 31.2% on the previous quarter, driven by the restart of US mining operations at Buchanan and Logan and strong Australian (Curragh) performance.

H1FY20 Results (Source: Company Reports)

Top 10 Shareholders: The top 10 shareholders together form around 72.81% of the total shareholding while the top four constitutes the maximum holding. Van Eck Associates Corporation and AustralianSuper are holding a maximum stake in the company at 55.86% and 8.0%, respectively, as also highlighted in the chart below:

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

Key Metrics: During FY19, the company reported decent improvement in margin performance, reflecting the company’s rising production growth and increased sales. Gross margin for FY19 stood at 45.6%, higher than 40.7% in FY18. EBITDA margin for FY19 stood at 28.6%, up from 26.9% in FY18. Current ratio for FY19 stood at 1.09x, lower than 1.36x in FY19.

Past 5-year Financial Performance for Year Ending 31 December 2020

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

December 2020 Quarter Highlights: For December 2020 quarter, the company reported total ROM production of 6.8 Mt, up 3.3% on the September 2020 quarter. During the quarter, the company earned a total revenue of US$372 million, taking the total FY20 revenue to US$1,462 million (unaudited). Total Saleable production for the quarter was 4.5 Mt, down 3.2% on the previous quarter. This took total FY20 saleable production to 7.0 Mt, which is at the top end of revised market guidance (16.5 Mt – 17.0 Mt). Total coal sales for the quarter stood at 4.9 Mt, up 1.0% compared to the previous quarter. CRN’s proportion of metallurgical coal sales volume in the December 2020 quarter was 81.0% of the total sales mix. Export sales as a percentage of total sales for the December quarter was 77.0%, up 2.0% over the previous quarter. The company ended the quarter with net debt of US$282 million, consisting of US$46 million in cash and US$328 million in drawn debt. The company intends to release its full-year FY20 results on 23 February 2021.

Q4FY20 Sales Mix (Source: Company Reports)

Key Risks: CRN is exposed to the risks unique to international mining and trading operations, including tariffs and other barriers to trade. The company is exposed to the risks associated with the COVID-19 pandemic as it remains an ongoing issue for steel production and metallurgical coal demand across the globe. The company is also exposed to the risk related to uncertainty and weaknesses in global economic conditions, including the extent, duration and impact on prices caused by reduced demand.

Outlook: In the last few months, the company has implemented several strategic initiatives to strengthen its balance sheet, preserve capital and increase its liquidity. CRN has reduced its FY20 capital expenditure by more than 40%, deferred the expansion capital for Curragh, and has continued its disciplined approach to cost management across the business. With decent liquidity levels, the company seems well placed to manage its operations efficiently and to improve its productivity, reduce costs and minimise overall cash burn. Further, the company is well-positioned to take advantage of a recovery in steel demand and metallurgical coal prices post COVID-19. The company continues to actively review plans for reducing operating, corporate and capital expenditure to ensure sufficient available liquidity during the current period of uncertainty and volatility. Market outlook for the company seems optimistic as global steel producers are ramping up steel production underpinned by the automotive and construction sectors.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

** 1 USD = ~1.31 AUD

Stock Recommendation: Over the last three months, the stock of CRN has provided a return of 63.05% and is currently trading below the average of its 52-week price band of $0.580 and $1.983, offering a decent opportunity for accumulation. On the technical analysis, the stock has a support level of ~A$1.02 and resistance of ~A$1.73. We have valued the stock using EV/EBITDA multiple based illustrative relative valuation method and have arrived at a target price of a low double-digit upside (in % terms). We believe the company might trade at a premium as compared to its peer median EV/EBITDA (NTM Trading multiple), considering the improved metallurgical coal outlook, recently implemented strategic initiatives to strengthen balance sheet, and also taking into account that the company has been commanding a premium in the past 3-years over its peer median. We have taken peers like Whitehaven Coal Ltd (ASX: WHC), New Hope Corporation Ltd (ASX: NHC), and Stanmore Coal Ltd (ASX: SMR). Considering the company’s decent performance in Q4FY20, positive coal outlook, healthy balance sheet, current trading level, and valuation, we give a “Buy” recommendation on the stock at the current market price of A$1.280, down by 1.539% on 3 February 2021.

CRN Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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