Contura Energy Inc (NYSE:CTRA), a Tennessee-based coal mining company with operations that span across the US, set the terms on Monday for an impressive IPO that could total at over $150 million. The coal-giant, which formed after a restructuring of Alpha Natural Resources, pegged initial shares at a range of $23 to $27.
Contura hopes to sell upwards to 6,000,000 shares on the market, though prominent underwriters will still be granted a 30-day option to buy an additional 900,000 shares. If Contura’s IPO follows through at its initially listed offers, the company could come to achieve an impressive valuation of over $800 million.
While some in the fossil fuel industry have been biting their nails over the recent expansion in green energy, Contura Energy is betting heavily on a coal-friendly market fostered under President Trump. The president’s 2016 election campaign focused heavily on reinvigorating Appalachian coal-mining states such as West Virginia and Ohio, a fact which Contura’s prospectus prominently highlighted.
The prospectus highly praised the president’s domestic energy ambitions and indicated that they bode well for the company’s future. Contura doesn’t deny that it faces increasing competition from green energy producers, but cited a “reduced regulatory burden” likely to be enjoyed by the industry due to the president as one of the reasons it’s optimistic.
The company cited the president’s suspension of the Clean Power Plan as one of the earliest indicators of the industry’s potentially prosperous future.
Contura’s prospectus also highlighted the growing threat that fracking and other natural gas initiatives pose to its coal mining operations. 37% of the company’s revenue thus far into 2017 was driven by its steam coal operations, which primarily dig coal for power that could be replaced by gas, meaning that further development of natural gas fields cut stand to cut into its future profits.
While it will face some serious competition, Contura Energy will also have an impressive cadre of investors at its back as it dives into the fossil fuels market. Citigroup (NYSE:C), Credit Suisse (SIX:CSGN), USB Investment Bank, and Jefferies will act as the bookkeeping managers, and a number of other securities firms will be peripherally involved as well.
Most investors will probably come to dig the company’s impressive sales record; Contura booked over a billion and a half in sales in a 12-month period which ended March 31, 2017. From July 2016 to December of the same year, the company brought in roughly $689 million in revenue while only posting losses of about $10.9 million in the same period.
Contura Energy’s prospectus also noted the longevity of the mines in the company’s possession, saying it had a remaining mine life of approximately 30 years based on 2016 levels of production, with over 1.0 billion tons of proven reserves and an additional 310 million tons of probable reserves.
Regardless of support it receives from the White House, Contura Energy’s future may simply bank on the future of the global coal market, which many investors may shun as being dead in the long term. China, the world’s largest consumer of coal, has recently instituted restrictions on domestic coal production as it competes with forex Malaysia, which could lead to more business for US producers in the short term but signals that the country is looking elsewhere for its power-needs in the long run.
Nonetheless, President Trump’s ardent commitment to coal miners to bring back their jobs and foster domestic US energy markets could lure in investors keen to capitalize on the political momentum currently enjoyed by the industry. If it hopes to survive well into the future, however, Contura Energy will need to show that it won’t rely on friendly politicians as life support vessels in an increasingly jeopardized market.
Contura Energy’s hefty levels of debt, which exceed $400 million, could also stand to muddy the company’s future. By nature of being a coal mining company, it will also need to divert serious sums of cash towards ensuring its employee’s health, as it already faces nearly $14 million in black lung obligations. Investors looking for a bold initiative to pin their hopes on could find what they’re looking for in Contura Energy’s earnest commitment to the American coal market, should the company overcome these hurdles and continue to post impressive revenue figures. With the president’s vocal support of the industry, it may yet give its competitors a run for their money.