This morning Coalspur Mines (CPT:TSX) updated the market on some of the activities they have undergone over the last quarter as well as cash flow reports. Among other things, over the last quarter, CPT closed their $350 million senior debt facility and drew down the initial $37 million from it. They also ‘advanced’ the regulatory developments for the Vista project which will have a two part hearing with the first scheduled for December 9, 2013 and the second for January 13, 2014. These hearings represent the final stages of the regulatory approval process. The Alberta Energy Regulator is expected to render its final decision within 90 days after the close of the second hearing.
We want to support this story, but think it has some work to go before we can jump completely onboard. The company has strong and loyal financial backers including Haywood Securities, Deans Knight Capital Management, EIG Global Energy Partners and Highland Park (the original LionOre Mining founders).
The company is developing the Vista thermal coal project and given the weakness in the underlying commodity price, the project is not the most economic given the current environment. Having said that, the project is in the lowest quartile of capital efficiency per tonne at $76 per tonne. The project remains roughly $100 million short in funding requirements for the $458 million 6mtpa scenario recently approved by the Board. They will need to raise a significant amount of equity ($50 to $100 million) unless they can secure a long-term off take agreement with an Asian partner.
Although we have no doubt they will be able to place that order, given their existing shareholder base, our issue remains what price will this order be placed. Important to note is that the company has continuously reviewed options for Vista bringing the capex down from an initial almost $1 billion price tag to the current $458 million. In fact, they were able to save almost $200 million of development capital while maintaining a 6mtpa throughput rate.
We will wait for more clarity on both the regulatory environment but more importantly on the financing solutions the company can come up with to complete development of the Vista project. Unfortunately it appears that the thermal coal markets will remain range bound and weak in the short-to-mid-term. However, given the company is led by Chairman Colin Steyn who, along with fellow CPT board member Peter Breese, built LionOre Mining from $100 million nickel company to an eventual $6 billion buyout by Norilsk Nickel (Peter would go on to become CEO of Norilsk following the acquisition). The pair also founded Mantra Resources which was eventually bought out by ARMZ for $1 billion. Knowing that this team has done it twice before and both times on a world-class scale, we remain conservatively bullish. Highland Park, which Colin and Peter are both investors, owns approximately 25% of the company.
CPT is showing resemblances of LionOre in that in early 1997 you could buy LionOre Mining in the $3-$4 range, then following the collapse of nickel prices, LionOre could be bought for $0.50 later that same year. By 2007, the company was in the midst of a bidding war which saw Norilsk Nickel buy them for $27.50 per share, all cash. The people that made the most money off of this deal, including Deans Knight, were loading up as the price collapsed.