Czech cheque may seize control of Coronado Resources via debt buy

Coronado Global Resources owns the Curragh coal complex in Queensland. Picture: iStock

Czech group Sev.en may opt to ­secure control of Coronado Global Resources by acquiring its debt on the cheap, with its bonds trading at about 67c in the dollar.

Coronado has $US194.9m of net debt, including a $US400m bond, and distress debt investors are said to be circling.

Should an aggressive hedge fund gain control of the loans at a discount, they are unlikely to offer the coal miner the time it needs to iron out its challenges, rather insisting on a debt for equity swap.

To avoid such an outcome, its 51 per cent private equity investor, Energy and Minerals Group, may opt to privatise the business.

Coronado is trading on the ASX at about $300m and was worth more than $3bn when the coal price was over $US200 a tonne, the level it needs to be for its key assets to be profitable.

It comes with talk that Sev.en is circling Coronado, but by acquiring the debt it could gain control for $US268m, the 67 per cent discount that the debt is trading at.

Coronado, which counts the Queensland Curragh mining complex as its major source of income, is struggling, with the metallurgical coal price down at about $US190 a tonne.

But when it no longer has to pay a burdensome royalty to the Queensland government-owned Stanwell Corp, which cost about $US120m last year and this year about $US7m a month, it will be in a far better financial position.

Coronado sells three million tonnes annually of thermal coal to Stanwell at a discounted rate for power, but from early 2027, it will not have to share in proceeds from coal exports with Stanwell and will only have to sell it about 2m tonnes for power, freeing up a further 1 million tonnes that can be exported.

Analysts believe this could add an additional $US80m of annual revenue and a $US160m turnaround in cashflow based on the royalty that Curragh is paying today.

The resources company is also building underground mining operations at Curragh to extract coal at a lower cost.

However, also crimping Coronado’s profits is payment obligations to the Wiggins Island Coal Export Terminal from its subsidiary Coronado Curragh, one of the terminal’s shareholders.

Industry experts believe shareholder EMG, despite being known as a seller out of the asset, may be the only place Coronado can turn to for support. The fund is cashed up and could benefit from the US exchange rate, and would unlikely let the business go at such an opportunistic price.

Another question is whether Sev.en would be able to raise the capital to buy Coronado. And although financiers such as White Oak, Ares Capital, Canyon Partners and Farallon Capital can provide more debt, it will come at a cost of about 3 to 5 per cent higher.

Coronado has $US325m of liquidity, comprising $US229m of cash, but it is more like $US225m when factoring in lender obligations to hold $US100m on its ­balance sheet.

Its $US424.4m of interest-bearing liabilities include a $US400m of senior secured notes with a 9.25 per cent interest rate.

It received a waiver from lenders for covenant breaches in ­December, and some question why it took until February to disclose this to the market.

The business was founded in 2011 by EMG, Garold Spindler and James Campbell and grew through a series of acquisitions in the US and Australia – including the purchase of the Curragh mine in 2017 for $700m. Coronado was floated the following year with a market value at $3.5bn. It has aspirations to produce 20.5 million tonnes of coal and had 15.3 million tonnes of group saleable production last year.

Sev.en, a family-owned business based in Prague, has moved aggressively to acquire coal mines and coal-fired power plants in its homeland before expanding into Britain and the US.