Bathurst Resources stock soars in face of coking coal revival
Bathurst Resources shares have rallied to a 3 1/2-year high on confirmation of its purchase from the receivers of Solid Energy's Stockton mine, which has infrastructure strategically placed to service its Buller Coal Project.
The ASX-listed, Wellington-headquartered company is projecting a massive uplift in production thanks to the output of Stockton and two mines near Huntly that have previously supplied the Huntly Power Station. Today Bathurst said it had agreed a 2 1/2-year contract to supply up to 150,000 tonnes a year from its Rotowaro and Maramarua mines. Analysts say it is likely to supply the power station as needed.
The stock fell 2.9 percent to 17 cents today, having earlier touched 18 cents, the highest since February 2014. Macquarie Research analysts last month raised their full-year 2018 forecast for hard coking coal forecast by 18 percent to US$155 a tonne in line with its upgrade for iron ore tied to what it saw as "improving sentiment for Chinese demand and strong macroeconomic data" that had driven most spot commodity prices higher.
BT Mining, the Bathurst-Talley's Group joint venture formerly known as Phoenix Coal, has acquired Solid Energy's Stockton, Rotowaro and Maramarua Mines and other properties for $96 million. It is buying mines that will lift production by 1.8 million tonnes a year to 2.2 million tonnes. Of that 1.7 million tonnes is steelmaking, or coking coal. Stockton's rail link runs to Lyttleton Port and it has existing steel-maker customers in India and Japan.
"Stockton is the jewel in the crown but I wouldn't dismiss the Waikato assets - I would expect BT Mining to start supplying the Huntly power station which for Bathurst will provide valuable local trade cash flow," said John Kidd, an energy analyst at Woodward Partners.
The deal "marks the final step towards what we expect to be a significant new coal supply agreement (CSA) with Genesis Energy for the supply of Rotowaro coal to Huntly power station," Kidd said in a note last week. "We would expect supply terms that are very much more favourable to Genesis than the CSA it held with Solid Energy which Genesis exited after Solid Energy fell into voluntary administration in 2015."
Bathurst turned to a loss of A$1.9 million in 2017 from a year-earlier profit of A$1 million. The size of the loss is the subject of a disagreement between Bathurst and its auditor, PricewaterhouseCoopers, which qualified its opinion of the miner's 2017 accounts because of its treatment of convertible notes as equity.
While the notes are denominated in Australian dollars, PwC said they had to comply with New Zealand accounting rules because the kiwi dollar was the company's functional currency, and NZ IFRS meant the notes should be treated as liabilities rather than equity. That would have dropped to the bottom line as an additional loss of $15.8 million, it said.
Bathurst disputes that assessment. It issued the notes to part-fund Bathurst's 65 percent stake in BT Mining and says the argument comes down to the interpretation of New Zealand rules on the conversion option which it described as "a technical accounting matter that will not in any way change the actual cash flows relating to these convertible notes."
Solid Energy was placed in voluntary administration last year after concluding it had no realistic prospect of refinancing $239 million of debt facilities due to mature in September 2016. Its downward spiral began in 2013 when slumping global coal prices exposed its commercial error in carrying substantial debt on its balance sheet to pursue a variety of novel energy projects that a previous board and management believed would give the business a future beyond coal extraction.