Asia Industrialization And Constrained Supply Will Spur Premium Coking Coal

Key Takeaways

• Coronado is poised to significantly outperform production, revenue, and margin expectations due to expansions, aggressive cost savings, and premium coking coal positioning.
  
• Strong liquidity and prudent management support acquisition opportunities, sustaining industry leadership and enabling higher shareholder returns through growth and capital distributions.
  
• Successful project ramp-ups, aggressive cost reductions, strong liquidity, improved future cash flow outlook, and sought-after assets position Coronado to weather industry challenges and unlock shareholder value.

Catalysts

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

• Analyst consensus expects strong production growth from the Mammoth and Buchanan expansions, but this likely understates the upside; with both projects already achieving record run-rates and management signaling optional Phase 2 and Phase 3 capacity extensions, Coronado could materially exceed volume forecasts, driving EBITDA and revenue well above market expectations.
  
• Analysts broadly agree that cost reduction efforts will improve margins, yet the pace and magnitude appear underappreciated-Coronado has already outperformed cost guidance, trended at the bottom of their cost curve, and guided for even more aggressive cost savings in 2025, potentially pushing net margins to top industry levels.
  
• The combination of persistent underinvestment in global coal supply and increasingly acute security-of-supply concerns, particularly from Asian steelmakers, positions Coronado to capture premium pricing and secure long-term contracts, which should result in durable revenue outperformance and enhance gross profit stability.
  
• With a global shift toward higher-quality coking coal and Coronado's differentiated product suite (including scalable high-premium output from both the U.S. and Australia), Coronado is likely to achieve sustained price realization well above industry averages, boosting top-line sales and supporting superior gross margins.
  
• Prudent balance sheet management and enhanced near-term liquidity will enable Coronado to aggressively pursue value-accretive acquisitions in a consolidating industry, setting the stage for step-change EPS growth and additional shareholder returns through accelerated buybacks or dividends.

Coronado Global Resources Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Coronado Global Resources compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Coronado Global Resources's revenue will grow by 16.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -14.5% today to 5.1% in 3 years time.
• The bullish analysts expect earnings to reach $162.7 million (and earnings per share of $0.09) by about August 2028, up from $-297.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 2.7x on those 2028 earnings, up from -1.3x today. This future PE is lower than the current PE for the AU Metals and Mining industry at 14.3x.
• 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 9.69%, as per the Simply Wall St company report.

Coronado Global Resources Future Earnings Per Share Growth

Risks

• Coronado has completed growth projects at Mammoth and Buchanan on time and within budget, and these projects are now ramping up, which will deliver an additional 3 million tonnes per annum of production, potentially increasing revenues and driving margin improvement in the near to medium term.
  
• Cost reduction initiatives have already resulted in $200 million of lower operating costs compared to the prior year, with further cost cuts scheduled, placing Coronado in the second quartile of the global cost curve and likely enhancing net margins even if coal prices remain subdued.
  
• The company's strong liquidity position, with $262 million in cash and up to $387 million in available liquidity, with no near-term debt maturities and new, more flexible covenant terms, reduces financial risk and supports ongoing operations through potentially prolonged low market conditions, stabilizing earnings.
  
• A material uplift in cash flow is expected starting in 2027 due to more favorable terms in the new Stanwell coal supply agreement, anticipated to increase annual cash flows by approximately $150 million, which could significantly strengthen future free cash flow generation and support shareholder distributions.
  
• Ongoing inbound interest from potential strategic investors or buyers for minority stakes in sought-after assets, underpinned by perceived long-term supply-demand imbalances in metallurgical coal, suggests that Coronado's assets have inherent value that could be realized or monetized, potentially supporting or boosting the share price even amidst secular industry headwinds.

Valuation

• The assumed bullish price target for Coronado Global Resources is A$0.3, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Coronado Global Resources's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$0.3, and the most bearish reporting a price target of just A$0.13.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $3.2 billion, earnings will come to $162.7 million, and it would be trading on a PE ratio of 2.7x, assuming you use a discount rate of 9.7%.
  
• Given the current share price of A$0.36, the bullish analyst price target of A$0.3 is 20.8% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• 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.