Emeco sourcing fresh funds

Emeco is the world’s largest independent mining equipment rental business.

Mining services provider Emeco has hired JPMorgan to raise funds through the US private placement market and the understanding among some is that the marketing campaign for the debt raising is now currently underway.

The raise is expected to be one closely watched by members of the coal mining community, which will likely have to approach that market in the future to source additional funds, and some believe that it could be finalised within a month.

Mining services provider Emeco has been diversifying away from coal, buying the gold mining services provider Pit N Portal earlier this year and most view the refinancing now by the company as proactive, given the cost of debt expected to rise for groups with exposure to the unpopular commodity.

Gold mining services now count for 17 per cent of its annual revenue and iron ore 22 per cent.

However, 19 per cent of the group’s revenue is still generated from thermal coal and 39 per cent metallurgical coal according to its recent results presentation for the 2020 financial year.

Mainstream banks have been shying away from companies with coal exposure due to concerns about the impacts on the environment of the commodity when used as a power source.

One group that will likely be paying close attention to Emeco’s bond raising will be Coronado Global Resources, which has a market value of $807.4m and net debt of $US404.9m.

The coal miner with assets in Australia and the United States delivered its results on Tuesday, handing down a $US123.2m loss.

Coronado, which counts private equity firm Energy and Minerals Group as a holder of almost an 80 per cent stake, in May received a waiver agreement from its lenders until February.

Investment bank Credit Suisse has been working closely with the company and is understood to have been recently sounding out investors for a potential acquisition of Coronado stock.

Some expect a heavily dilutive equity raising by way of a rights issue may be on the cards for the company to shore up its position.

While the USPP market is currently well supported, analysts say that the test will be the extent towards whether investors want coal exposure.

The understanding is that there is appetite for investment companies with exposure of less than 20 per cent, which is good news for groups like Emeco.

But with banks shying away, the debt in coal companies like Coronado are thought to be rich pickings for opportunistic funds such as Oaktree Capital Management, Davidson Kempner and Apollo, as recently seen with groups buying debt in the coal fired Bluewater Powers Station which was unable to refinance its loans.

Coal prices are currently at a low point and sources say some major producers have been washing coal and returning it to its mines in Queensland and NSW due to the weak demand.

Emeco currently pays a rate of 9.25 per cent yield on its US$322m of US notes, and has been looking to refinance the debt due in March 31 2022 at a lower rate, as reported by this column on Monday.

Some believe that it may achieve a rate as low as 7 per cent, or in the worst case, less than 8.5 per cent.

Emeco is trying to source fresh funds for a refinancing as its total debt levels sit at $556.8m and cash on the balance sheet at $198.2m.

The $366m mining services provider’s move to bring forward its full-year results to July 27 has been seen as a sign that a debt refinancing will come sooner rather than later.

At the beginning of the year, Emeco moved to tap the Australian bond market for funds to refinance its US debt, but that plan was put on hold when COVID-19 hit the market.

Emeco is the world’s largest independent mining equipment rental business and it is believed to be facing pressure from investors such as activist Black Diamond, which controls 18.65 per cent of the company, to diversify into other commodities.