A Brief Reprieve for Coal

Corporate Finance & Restructuring | Mining

April 26, 2018

coal production

While the resurgence of coal prices in 2016 may have provided a temporary relief for struggling operators, it’s likely we haven’t seen the last restructuring if regional government policies hold and prices maintain their current trajectory.

It was not that long ago that the coal industry in Asia Pacific experienced one of the worst commodity routs of recent times. As the Chinese economy slowed, the highs of 2011 for both thermal and coking coal plummeted leaving producers facing a harsh new reality. Debt-laden coal companies across Asia Pacific buckled under the pressure of sustained low prices with many major producers forced to restructure to survive. Berau Coal, Bumi Resources, Mongolian Mining, Hidili, E-Commodities Holdings (f.k.a Winsway Enterprises Holdings) and Cockatoo Coal were just some of the numerous names affected.

In early 2016, thermal coal and coking coal were trading at around USD$50 and USD$80 per metric tonne respectively, a far cry away from the glory days of the mining boom. At its peak in 2011, coal commanded upwards of USD$100 for thermal and USD$300 for coking coal.

For some producers, spot prices for coal dipped below their respective cost curves forcing them to often trade at losses (given significant take-or-pay obligations relating to associated infrastructure) and look to significantly reduce operating costs, defer capital expenditure and/or mothball or shut down mines. This environment only exacerbated matters for companies that had expanded too quickly on the back of easy credit and subsequently found themselves saddled with substantial debt burdens. At best, producers were looking to survive.

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