Dividend Bonanza for Coronado Global Resources

Australia | May 11 2022

This story features CORONADO GLOBAL RESOURCES INC. For more info SHARE ANALYSIS: CRN

Following first quarter results for Coronado Global Resources, brokers highlight an increased focus on shareholder returns and potential for further special dividends.

-Coronado Global Resources announces a special dividend
-More special dividends in prospect
-Stronger realised pricing expected in the second quarter
-Russian coal ban to support prices for years

By Mark Woodruff

Shares of Coronado Global Resources ((CRN)) were trading under 60 cents just 12 months ago and have since climbed to around $2.20, after reaching a $2.49 high earlier this month.

Apart from share price appreciation, shareholders are set to benefit from strong free cash flows in the form of dividends, as management has no intention of holding funds for acquisition opportunities.

The company produces and exports metallurgical (met) and thermal coal from a portfolio of mines in Queensland and in the US states of Virginia and West Virginia.

Following the release of first quarter financial and production results, Macquarie increases its dividend payout ratio assumption to 60% from 40% for future periods.

A special dividend of US$11.9cps was announced for the quarter, consisting of US$5.9cps from an unsubscribed senior notes offering in February, and US$6cps which represented 78% of free cash flow. Dividends are expected to remain unfranked in the near term as franking credits are being accumulated.

The company has again offered to purchase its senior secured notes though Bell Potter believes a material uptake is unlikely, given the notes are trading at around 108% of face value. According to Credit Suisse, this creates another opportunity to distribute the unsubscribed amount as a special dividend at June half results.

Management maintained 2022 coal sales guidance of 18.0-19.0mt and expects production and sales to be weighted to the second half of the year. Cost guidance was also maintained though Macquarie points to rising cost pressures, as experienced across the mining industry.

While the company’s reported average realised coal prices were materially higher than for the first quarter 2021, group realised prices were -45% lower than the hard coking coal benchmark for the quarter, due to the lag of around three months in price realisation. Given this lag and the ongoing rally in coal prices, the broker expects stronger realised pricing in the second quarter.

Outlook

Management points out there has been little impact on coal prices from soft Chinese steel production amidst lockdowns, and prices should be supported for the next few years by the ban on Russian coal into the EU and Japan.

Goldman Sachs, not one of the seven brokers updated daily in the FNArena database, remains positive on the met coal market in 2022 with a price forecast of US$372/t, and clear upside risk with the spot price currently around US$520/t.

The analyst sees growth in production emanating from management’s target for the Curragh coal mine to reach 13.5Mt by 2025 and 6.9Mt from US operations by 2025. Meanwhile, the company has also restarted study and permitting work on the Mon Valley coking coal deposit. The broker maintains its 12-month $3.00 target price and Buy rating.

Bell Potter, also not one of the seven, expects current record high prices will support the capital works required to improve Curragh’s through the cycle performance. The broker maintains its Buy rating on near-term dividend yield and commodity price support, while lowering its target price to $2.50 from $2.55.

There are three brokers in the FNArena database with a Buy or equivalent rating and an average 12-month target price of $3.11, which suggests 42.7% upside to the latest share price.

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