By Caitlin Huston
August 1, 2017 - Coal-mining company Contura Energy Inc. is expecting the coal industry to enjoy a prolonged life, thanks to President Donald Trump.
Shareholders in the coal mining company are selling six million shares in an initial public offering at a price of $23 to $27 a piece, raising $162 million on the high end of the range.
The company has been approved to list on the New York Stock Exchange under the ticker symbol “CTRA.” The stock has been trading on the OTC Pink market under the symbol “CNTE.” Citigroup and Jefferies are the lead underwriters on the offering.
In its prospectus, Contura Energy CNTE, +0.79% lists several restrictions and economic issues related to the coal industry, but says those could be mitigated under Trump, who has promised to bring back jobs in coal-mining states, such as West Virginia, Pennsylvania and Wyoming. In all, the prospectus mentions Trump by name 13 times.
The company’s steam coal operations, which accounted for 37% of its revenue so far this year, could be negatively impacted by the trend toward natural gas-fired plants, rather than coal-fired plants, the company said in its prospectus. Metallurgical coal, which is used in steel production, accounted for 63% of Contura Energy’s revenue so far this year.
China, the largest met coal producer and consumer in the world, pledged to scale back its met coal production to 165 million tons earlier this year, according to the prospectus, which the company notes could affect the global market.
But Trump’s promise of a resurgence in coal, his decision to pull the U.S. from the Paris Climate Agreement and moves to scrap environmental regulations have left companies like Contura optimistic.
“In addition to rising natural gas prices, the coal industry is expected to benefit from a reduced regulatory burden via recent and ongoing legislative and administrative action,” the company said in its prospectus.
“Potential repeal or revision of the Clean Power Plan and other potential actions from the current Administration should ease the pressure on coal-fired utilities to retire units prematurely, arguably increasing the life of the current domestic coal fleet.”
U.S. steel companies appear to be staging a comeback after Trump has vowed to bring back jobs in that industry, the New York Times reported.
However, analysts and economists expect utilities to continue their shift away from coal and toward cleaner-burning fuels, which is already well advanced. The Obama-era Clean Power Act is currently being held up by the Supreme Court, and legal experts say it could take years to unwind.
Contura’s view of the coal industry is similar to that of Warrior Met Coal LLC HCC, -0.48% which went public in April, also citing Trump’s attack on regulation as a possible benefit. Shares of Warrior Met Coal have gained 18% in the past three months, outperforming the S&P 500’s SPX, +0.15% gain of 4%.
Still, coal companies are not entirely back en vogue. Ramaco Resources Inc. METC, +4.28% another coal-mining company that went public in February is the worst-performing IPO of the year, down 54% from its IPO price, according to Renaissance Capital, a manager of IPO-focused ETFs.
Contura emerged from a bankruptcy of Alpha, beginning operations on July 26, 2016, after acquiring some of Alpha’s assets.
Davidson Kempner Funds is selling the greatest number of shares in the Contura offering, at a planned 1.8 million if the over-allotment option is not exercised, but it would still own 13% of the company after the offering. Mudrick Funds and Whitebox Funds, both hedge funds, are the next largest shareholders.
As a standalone company, Contura brought in revenue of $689 million from July 2016 to December 2016, as it posted a net loss of $10.9 million. The company swung to a profit in the three months ended March 30, recording net income of $32.3 million.
Contura still has to contend with the unfunded obligations of $20.8 million of workers’ compensation obligations and $13.8 million of black lung obligations, some of which was inherited from Alpha. Overall, it has $406.6 million of debt, before certain discounts and issuance costs are applied.
Healthcare costs could increase under legislation enacted in 2010 which eliminates lifetime and annual dollar limits for covering an individual.
Still, the company says it has coal reserves that could support its current level of production for more than 20 years.