Coronado and Peabody ponder tie-up as coal surges

One scenario is Peabody buys Coronado, allowing one of Coronado’s private equity holders to exit.

Soaring coal prices are prompting merger talks throughout the industry, and the latest suggestion is that a tie-up between the $3.3bn Coronado Global Resources and Peabody Energy is on the agenda.

It may be a “no comment” from both companies, but that has not been enough to silence the speculation from Wall Street about a transaction looming.

Sources say that, although they know the discussions are happening out of New York, the nature of any merger and whether a plan is advanced is unclear.

Shares in both Coronado and Peabody are surging after both groups were on their knees just a few years ago, when lenders refused to lend to coal miners and they needed to pay down debt.

Now the price of the commodity has gone through the roof, as Europe faces an energy shortage with sanctions in place against Russia following its attack on Ukraine.

Newcastle thermal coal is now $US386.50 a tonne – up 58 per cent in the past year – while the price of futures for coking coal, used to make steel, is at $US276.80 a tonne.

After trading at one stage at less than $1, Coronado’s share price is now $1.93.

Peabody Energy – the US company that had previously entered Chapter 11 Bankruptcy – has a $US3.9bn ($6.2bn) market value. Its share price is now $US27, after the shares were trading at $US2.52 in 2020.

One scenario is where Peabody buys Coronado, allowing one of Coronado’s private equity holders that is keen for an exit to sell.

Private equity firm Elliott Management owns 18 per cent of Peabody, having sold down from a holding of about 30 per cent, and a deal could dilute its stake to enable it to also take some money off the table.

AustralianSuper remains a holder in Coronado with a 9 per cent stake, according to Bloomberg data.

For the six months to June, Coronado made a record $US561.9m half-year profit, up 685 per cent from its $US96.1m loss for the first half of 2022.

Coronado produces coal from its Curragh operations in Queensland, and from two US coal mines, selling Australian coal to Japan, Korea, India and Brazil. Its US coal is shipped to Europe, China, India and Brazil.

Demand is so strong for thermal coal, the higher-quality coking coal is being sold into thermal coal markets.

Coronado was floated by its private equity owner Energy and Minerals Group shortly after acquiring the Curragh coking coal mine from Wesfarmers for $700m – a value far less than what it was priced at when listed.

Its market value was $3.85bn and shares were sold at $4 before they plunged when coal fell out of favour.

Advisers on the deal include Goldman Sachs, Bell Potter, Credit Suisse and UBS.