Coronado Global Resources Inc.

Company Overview: Coronado Global Resources Inc. Limited (ASX: CRN) produces and exports a complete range of Metallurgical (Met) coal. It owns an asset and development project portfolio in Australia (Queensland) and the US (Virginia, West Virginia, and Pennsylvania). The Australian segment operates the Curragh mine and produces met coal, while the U.S. runs the Buchanan, Logan and Greenbrier coal mine facilities and produces hard coking coal. CRN caters to customers across the U.S., Asia-Pacific, and Europe.

CRN Details

This report is an updated version of the report published on 25 May 2022 at 3:55 PM GMT.

Recent Developments:

• CRN declares distribution of ~$200 million in special dividends and purchase offers for senior notes led by net cash position and robust Q1FY22 (ended 31 March 2022) results.
• Revised Dividend Policy: CRN plans to start a fixed dividend (bi-annually) of ~US 0.005 per CDI besides the bi-annual variable dividend under its policy to distribute ~60% - 100% of its free cash flows every year.

Summary of Dividends and Senior Secured Notes; Source: Analysis by Kalkine Group

Robust Met Coal Fundamentals: CRN is experiencing robust demand, supply constraints, and prevailing Russia / Ukraine conflict driving growth in the price cycle and average realisations. Met coal products are witnessing high demand. The met coal index pricing touched at ~US$670/tonne in March 2022, up by ~24.4% Q-o-Q.

Trend of Met Coal Realized Price; Source: Analysis by Kalkine Group

Growth in Key Metrics in Q1FY22 (ended 31 March 2022):

• ROM (Run-Of-Mine) coal production stood at ~6.7 Mt (up by ~5.0% Q-o-Q), and saleable production was up at ~4.2 Mt (was up by ~3.5% Q-o-Q) in Q1FY22 versus Q4FY21 (December quarter).
• The met coal benchmark prices were reported to be well above long-term averages with increased demand for CRN’s products in Europe.

Financial Performance Q1FY22 Vs. Q1FY21, Source: Analysis by Kalkine Group

The Trend of Group Production; (Analysis by Kalkine Group)

Key Metrics: CRN witnessed a significant increase in ROE in Q1FY22 (+23.6%) versus Q1FY21 (-5.2%). The net margins also turned positive from -10.9% in Q1FY21 to +28.5% in Q1FY22.

Top 10 Shareholders:

The top 10 shareholders together form ~67.38% of the total shareholding. Coronado Group LLC and AustralianSuper hold a maximum stake in the company at ~­­­50.41% and ~8.87%, respectively.

Source: Analysis by Kalkine Group

Risk Categories:

• Rise in Operational Costs: CRN faces the risk of increased logistics costs due to higher freight charges and adverse weather conditions.
• COVID-19 Led Disruptions: The company faces a tight labour market and inflationary pressures due to the persistence of COVID-19.

Outlook: 

• CRN plans to progress the implementation of the ‘One Curragh Plan’ at the Curragh mine and prioritise growth expenditure projects to increase current production rates.
• The company has a flexible and robust balance sheet to pursue acquisitions.
• CRN estimates FY22 costs between the market guidance range of ~US$69 - ~US$71 per tonne.
• CRN expects to distribute fixed dividend payments subject to the board approval and after the releasing its FY22 results.
  

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Source: 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.

Stock Recommendation: The stock of CRN gave a positive return of ~49.35% in the past three months and a positive return of ~100.0% in the past six months. The stock has a 52-weeks’ low level of $0.635 and a high level of $2.490. The stock has been valued using the EV/Sales-multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount than its peers’ median EV/Sales multiple, considering the COVID-19 disruptions, a tight labour market, and exploration risk. For this purpose of valuation, a few peers like Whitehaven Coal Ltd (ASX: WHC), Yancoal Australia Ltd (ASX: YAL), Mount Gibson Iron Ltd (ASX: MGX), and others have been considered. Considering the elevated pricing level of met coal, positive demand outlook, plans to improve production rates and planned project improvements, an indicative upside in valuation, associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $2.315, as of 25 May 2022, 3:52 PM, (GMT+10), Sydney, Eastern Australia.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical issues prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing.

CRN Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer

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