IPO Report: CNX Coal Resources LP (CNXC)

Francis Gaskins |

CNX Coal Resources LP (CNXC) is a growth-oriented master limited partnership recently formed by CONSOL Energy (CNX), $5.7bb market cap, to manage and further develop all of its active thermal coal operations in Pennsylvania. The company is based in Canonsburg, PA.

Twelve other companies are scheduled for the week of June 22. The full IPO calendar is available at IPO Premium.

SEC Documents

Manager, Joint-managers: BofA Merrill Lynch, Wells Fargo Securities, Citigroup, Jefferies, Scotia Howard Weil/ Credit Suisse, J.P. Morgan, Evercore ISI, BB&T Capital Markets, Goldman Sachs, The Huntington Investment Company, Stifel, Nomura
Co-managers: Clarksons Platou Securities, Cowen and Company, Tuohy Brothers

End of lockup (180 days): Tuesday, December 22, 2015
End of 25-day quiet period: Monday, July 20, 2015

CNXC scheduled a $200 million IPO with a market capitalization of $232 million at a price range midpoint of $20 for Thursday, June 25, 2015 on NYSE.

Summary

CNXC is a growth-oriented master limited partnership recently formed by CONSOL Energy (CNX), $5.7bb market cap, to manage and further develop all of its active thermal coal operations in Pennsylvania.

CNXC’s initial assets will include a 20% undivided interest in, and operational control over, CONSOL Energy’s Pennsylvania mining complex, which consists of three underground mines and related infrastructure that produce high-Btu bituminous thermal coal that is sold primarily to electric utilities in the eastern United States, CNXC’s core market.

Valuation

Glossary

Valuation Ratios

Mrkt Cap (mm)

Price /Sls

Price /Erngs

Price /BkVlue

Price /TanBV

% offered in IPO

CNX Coal Resources LP (CNXC)

$474

1.4

6.2

2.9

2.9

42%

             

Conclusion

Neutral

Yields 10% at mid-point

Rev exp to decline -12%

Excess cash flow exp to decline -57% tp 30%

CNX is the parent, $5.7bb market cap

CNX may be source of future drop down assets

Selling 42% on the IPO

The EPA is an issue

Business

CNXC is a growth-oriented master limited partnership recently formed by CONSOL Energy (CNX), $5.7bb market cap, to manage and further develop all of its active thermal coal operations in Pennsylvania.

CNXC’s initial assets will include a 20% undivided interest in, and operational control over, CONSOL Energy’s Pennsylvania mining complex, which consists of three underground mines and related infrastructure that produce high-Btu bituminous thermal coal that is sold primarily to electric utilities in the eastern United States, CNXC’s core market.

Since 2006, CONSOL Energy has invested over $2.0 billion at the Pennsylvania mining complex to develop technologically advanced, large-scale longwall mining operations that enable CNXC  to efficiently mine large volumes of coal with low operating costs, high reliability and strong safety and environmental compliance.

CNXC believes that its ability to efficiently produce and deliver large volumes of high-quality coal at competitive prices, the strategic location of its mines, the industry experience of its management team and its relationship with CONSOL

Energy position CNXC as a leading producer of high-Btu thermal coal in the Northern Appalachian Basin and the eastern United States.

The Pennsylvania mining complex, which includes the Bailey mine, the Enlow Fork mine and the newly opened Harvey mine, has extensive high-quality coal reserves.

CNXC mines its reserves from the Pittsburgh No. 8 Coal Seam, which is a large contiguous formation of uniform, high-Btu thermal coal that is ideal for high productivity, low-cost longwall operations.

As of December 31, 2014, the Pennsylvania mining complex included 785.6 million tons (157.1 million tons net to CNXC’s 20% interest on a pro forma basis) of proven and probable coal reserves with an average gross heat content of approximately 13,000 Btus per pound and an average sulfur content of 2.37%.

Based on CNXC’s current production capacity, these reserves are sufficient to support over 27 years of production.

Many of CNXC’s customers’ power plants are optimized to burn coal with CNXC’s particular heat and sulfur characteristics, which CNXC believes further enhances its position as a leading supplier of coal to power plants in the eastern United States.

In addition, all of CNXC’s reserves exhibit thermoplastic behavior suitable for cokemaking and contain an average of approximately 39% volatile matter (on a dry basis), which enables CNXC, if market dynamics are favorable, to capture greater margins from selling CNXC’s coal in the metallurgical market to cokemakers and steel manufacturers who utilize modern cokemaking technologies.

Intellectual Property

nothing

Competition

There are numerous large and small producers in all coal producing basins of the United States, and CNXC competes with many of these producers.

CNXC’s main competitors include Alliance Resource Partners, L.P., Alpha Natural Resources, Inc., Arch Coal, Inc., Foresight Energy LP, Murray Energy Corporation, Patriot Coal Corp. and White Oak Resources LLC.

5% Shareholders Pre-IPO

CONSOL Energy Inc.     100%

Dividends

Under CNXC’s current cash distribution policy, CNXC intends to make a minimum quarterly distribution to the holders of its common units and subordinated units of $0.5125 per unit, or $2.05 per unit on an annualized basis, to the extent CNXC has sufficient available cash after the establishment of cash reserves and the payment of costs and expenses, including the payment of expenses to its general partner.

10.25% yield at $20

Use of Proceeds

CNXC expects to receive $184 million from its IPO and use it for the following:

to distribute all of the net proceeds from this offering to CONSOL Energy.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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