Securities Law Blog

On February 3, 2017, The Wall Street Journal (WSJ) reported on perhaps the hottest current market sector for initial public offerings: coal mining. The prior day, Ramaco Resources, Inc., a Lexington, Kentucky coal miner, priced an $81 million initial public offering via Credit Suisse, Jefferies and BMO Capital Markets, apparently setting in motion a revival in coal IPOs and related investments that has been entirely moribund since the mid 1990s, according to the WSJ. Triggering the activity in the segment has been a tripling in international coal prices during 2016 from a decade-low for the metallurgical coal used to make steel due to rule changes in China that limited work in mines, mine retirements in Australia and U.S. production cutbacks, creating supply-side profitability for coal miners. This activity is taking place while tech IPOs have been sidelined awaiting Snap’s expected IPO in March.

According to the WSJ, at least six U.S. coal firms are preparing or exploring public offerings. No year has ever had more than four coal company IPOs, according to records from data provider Dealogic that go back to 1995.

Among the coal companies mentioned, Warrior Met Coal LLC has engaged Credit Suisse and other investment banks to lead what could be the next IPO, which is expected to value the company at about $3 billion, according to WSJ sources. Blackhawk Mining LLC, one of the largest producers of metallurgical coal in the United States, is also considering an IPO, according to WSJ sources. That company is marketing $660 million in debt and could follow that with an equity offering in the early summer, the source indicated. Contura Energy Inc. and Coronado Coal LLC are also reported to have been interviewing investment bankers for potential stock listings, WSJ sources stated. Paringa Resources Ltd., with shares trading in Australia, is exploring a U.S. IPO for a startup Kentucky coal business, according to a WSJ source. Unlike the other companies, Paringa focuses on thermal coal used for power generation.

Demand expectations in the market sector were adjusted upwards this past fall after the election of President Donald Trump, who has said he wants to revive the sector. On February 2, 2017, the U.S. Senate gave the industry another potential lift by following the House in voting to repeal a rule that limited companies from dumping mining waste in streams. The coal industry viewed the environmental rule as burdensome regulation.

The future for coal IPOs, however, is heavily influenced by the impact of metal price fluctuations. Coal prices have been volatile since November 2016 when China relaxed restrictions on the number of days that mines can be open and mining companies worldwide ramped up production to take advantage of the rally in coal prices, according to the WSJ. Some miners are still very early in the exploration process for coal reserves, continued the WSJ, and could scrap construction and development activities if coal prices fall precipitously. Companies could also spin off metallurgical coal assets or consolidate them. Absent public offerings, coal companies would need to rely on funding most of their development costs on private non-recourse project financing and government loan assistance.

In another development affecting mining companies, on February 3, 2017, the U.S. Senate voted to repeal the SEC’s resource extraction antigraft rule, which mandated oil, gas and mining companies to report payments made to foreign governments. President Trump is expected to approve the rule’s repeal. The SEC rule was originally adopted in June 2016 as a part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, but had not yet become effective. Further deregulation may result in additional investment into traditional energy markets, but whether that would aid or hinder the coal industry is still to be determined.