Sev.en buys up Coronado’s debt raising takeover prospects

Coronado sells three million tonnes annually of thermal coal to Queensland government-owned Stanwell Corp.

Czech group Sev.en is understood to have bought more than $US40m ($62.2m) in Coronado Global Resources debt – a move that could be followed by takeover attempts of the struggling miner.

Reports among distressed debt experts are that the bonds to cash-strapped Coronado have been trading at about 67c in the dollar.

Coronado has $US194.9m of net debt, including a $US400m bond with a 9.25 per cent interest rate, and distress debt investors are said to be circling.

Private equity investor Energy and Minerals Group owns 51 per cent of the business after floating the company in 2018.

Sev.en agreed to buy the 51 per cent holding for what was thought to be about $1.5bn, but backed away from the agreement in 2024 when the coal price fell.

Questions remain over whether Sev.en has the funding to buy Coronado, what with some other global coal investments said to be struggling with the falling price of the commodity.

The family office investment group owns Blackhawk Mining in the US after buying the metallurgical coal miner in 2020 after it entered Chapter 11 bankruptcy, reportedly with at least $US1bn of debt. It owns US-based Gold Eagle Land Company that bought four coal companies and controls more than 2.2 billion tonnes of proven reserves of metallurgical and thermal coal in the US.

Sev.en has also been embarking on acquisitions for its steel production company 7 Steel and owns the InterGen gas-fired power generation business in the UK, along with investments in Vietnam and a number of Australian investments such as Delta Electricity, Genuity coal-fired power stations, Salt Lake Potash and a royalties business.

Coronado is trading on the ASX at about $192m 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.

The Queensland Curragh mining complex is its major source of income, but is struggling, with the metallurgical coal price down at about $US190 a tonne. One of its largest shareholders, L1 Capital, has recently been selling down its holding.

When it no longer has to pay a royalty to the Queensland government-owned Stanwell Corp, which cost about $US120m last year, 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 one 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.

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 per cent to 5 per cent higher.

It received a waiver from lenders for covenant breaches.

The business was founded in 2011 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 and had 15.3 million tonnes of group saleable coal production last year.

Last week, ratings agency Moody’s downgraded its rating to junk bond status on the back of the rapid weakening of its liquidity position driven by a declining cash position and uncertainty around its ability to access external funding.

It is trying to find funds to replace its $US150m asset-backed lending facility with another $US150m loan that has better terms.

Moody’s said with the company loss making and having significant negative free cash flow at current prices, it believed future access to the current facility was unlikely even if further covenant waivers were received.