Mammoth And Buchanan Projects Will Drive Efficiency And Stability

Key Takeaways

• Completion of key projects is set to boost production, enhance revenue, and improve margins through cost per ton reduction.
  
• Cost-cutting and liquidity strategies aim to lessen expenses and improve cash flow, bolstering financial stability amidst market shifts.
  
• Challenging coal market conditions and financial constraints could pressure Coronado's revenue and profit growth, exacerbated by global steel market uncertainties and capital management limitations.

Catalysts

Produces, markets, and exports metallurgical coal in Asia, North America, South America, Europe, Australia, and internationally.

• The completion of the high-return Mammoth and Buchanan growth projects is on schedule, expected to significantly increase production in the second half of the year. This increased production should enhance revenue and improve margins by lowering the cost per ton.
  
• Cost reduction initiatives, including phasing out certain mining operations and reducing contractor services, are anticipated to lower operational expenses. This could increase net margins and boost overall earnings, especially as additional cost reductions are expected in 2025.
  
• Liquidity optimization strategies, such as restructuring or replacing the current Asset-Based Loan (ABL) facility, are underway. These financial moves aim to provide greater financial flexibility and improve cash flow management, which should stabilize earnings and protect margins during market downturns.
  
• The expected completion of expansion projects will reduce capital expenditure significantly in the second half of the year. This reduction in CapEx will likely result in improved free cash flow, enhancing earnings and providing greater financial stability.
  
• With long-term contracts and a positive demand outlook for its products, Coronado Global Resources is positioned to benefit from potential market recoveries. This could lead to higher revenue and improved net margins as demand for metallurgical coal strengthens globally, particularly driven by recovery outside of China and sustained demand in India.

Coronado Global Resources Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Coronado Global Resources's revenue will grow by 3.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from -4.4% today to 3.2% in 3 years time.
• Analysts expect earnings to reach $86.1 million (and earnings per share of $0.07) by about May 2028, up from $-108.9 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $173.3 million in earnings, and the most bearish expecting $-11.1 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 6.6x on those 2028 earnings, up from -1.7x today. This future PE is lower than the current PE for the AU Metals and Mining industry at 12.1x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.4%, as per the Simply Wall St company report.

Coronado Global Resources Future Earnings Per Share Growth

Risks

• The company is facing extended market conditions in the met coal market, pressuring their future revenue streams.
  
• Uncertainty in global steel markets and tariffs, particularly affecting demand in China, could negatively impact their revenue from coal exports.
  
• High operational leverage in a downturn could lead to financial strain, impacting the company's net margins.
  
• The need to restructure or replace their ABL facility to maintain liquidity reveals potential financial instability, which affects future earnings.
  
• Reliance on current cash reserves and a restrictive ABL agreement could limit flexibility in capital management, potentially affecting future revenue and net profit growth.

Valuation

• The analysts have a consensus price target of A$0.38 for Coronado Global Resources based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$1.04, and the most bearish reporting a price target of just A$0.16.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.7 billion, earnings will come to $86.1 million, and it would be trading on a PE ratio of 6.6x, assuming you use a discount rate of 11.4%.
  
• Given the current share price of A$0.18, the analyst price target of A$0.38 is 54.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.