Contura Energy - Update Following Review Of New Presentation

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About: Contura Energy, Inc. (CNTE)
by: BenWise Research
Summary

New investor presentation posted.

Expect 10-Q by November 30.

Investor relations strategy being formulated.

Contura recently provided an updated investor presentation on their new website www.conturaenergy.com. The presentation provides a good overview of the assets of the company and provides year-to-date production numbers for each of their mines which are in line with our numbers. Following a review of the presentation, I spoke with the company and learned the following:

  • The company will be filing a 10-Q in the next few weeks, expected before November 30. We believe that this will be a de-risking event as many investors want to see that the company will be a reporting issuer. It was a little unclear if they will host a conference call, but an investor relations person has been hired and an IR strategy is being formulated. We understand that a number of analysts have asked to assume research coverage.
  • The company confirmed that no metallurgical coal production has been sold forward, and therefore, they are in a position to realize higher prices than what was modeled in the plan forecast. With run rate production of 4mm short tons, approximately 70% is sold to Europe and the balance is sold domestically. The export contracts are settled quarterly and the domestic contract is annual. Both are currently being negotiated.
  • With respect to pricing, the company indicated that pricing in Europe was approximately $215 per metric tonne. We estimate that the plan forecast assumed $90 per short ton realized. For illustrative purposes, at spot prices we estimate that Contura would generate approximately $700 million of EBITDA, or $430 million incremental to its plan forecast.
  • The company indicated that thermal coal production for next year has largely been contracted. Therefore, the $270mm of EBITDA presented in the plan forecast should be viewed as highly conservative given the move in metallurgical coal.
  • The company confirmed that there are 10mm basic shares outstanding, with dilutive instruments of approximately 1.6mm, bringing the fully diluted share count to 11.6 million.
  • Based on $250mm of net debt outstanding (excluding any cash generated in the last quarter), the enterprise value of the company is approximately $975 million (and assuming $25mm of cash is generated from warrant and option exercise), Contura is trading at 3.6x the old plan forecast EBITDA and closer to 1.4x at spot metallurgical coal prices, both of which are material discounts to comparables.

Disclosure: I am/we are long CNTE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.