Coronado downgrades earnings with coal price drop warning
Global economic woes and coal price trends to dictate fate as Coronado downgrades earnings guidance.
Coronado Global Resources has blamed weakness in metallurgical coal prices for downgrading its annual earnings guidance by 7 per cent and warns prices might fall further as global economic jitters continue.
The Australian and US coal producer now expects earnings before interest, tax, depreciation and amortisation of $US687 million ($1.006bn) to $US737m, from an original range of $US737m to $US807m.
Those revised numbers are based on a metallurgical coal spot price of $US140 a tonne for the remainder of the year, below the $US160 a tonne spot price when its half-year results were released on August 5.
Shares fell as much as 7.4 per cent and were down 6 per cent to $2.28 at 12.20pm AEST.
Metallurgical coal - used in the production of steel - has slumped 30 per cent in the past three months to $US128 a tonne, including an 8 per cent plunge on Monday, as concerns about the world economy hits steel demand.
“We can control most things in our business, but we cannot control global market pricing for metallurgical coal. The recent fall in spot prices, if sustained, is likely to adversely impact EBITDA,” Coronado chief executive Gerry Spindler said. “In the short term, we see the possibility of prices remaining at lower levels, with the potential for further deterioration in light of the uncertainties and weakness in the global macro-economic environment.”
The company, which listed on the ASX a year ago, bought the Curragh coal mine in Queensland from Wesfarmers last year. It’s currently looking to expand and also owns coal operations in the US states of Virginia and West Virginia.
Broker Shaw & Partners noted while Coronado reaffirmed production, costs and capital expenditure guidance, ultimately coal price trends will dictate its fate.
“Coal prices haven’t just declined recently - the trend has been lower since mid-2018 – a full 12-15 months,” Shaw analyst Peter O’Connor said. “Thermal coal peaked at $US120 a tonne and is now languishing in the low $US60’s, ~50% lower, while met coal price has declined more than 50 per cent from cycle high in early 2018 and ~45 per cent year to date.”
Australia’s largest listed coal producer, Whitehaven Coal, has seen its shares fall 27 per cent this year to $3.12 which broker Shaw & Partners said was closer to fair value.
“We have been calling about the stretched valuation metrics for some time,” Mr O’Connor said. “The share price normalisation journey from $5.89 in mid-2018 to the low $3/share level currently is now very close to ‘fair value’ and now just 10 per cent from our $2.99 target price.”