Coalspur Continues to Feel the Heat of Cooling Coal Demand

POSTED ON July 17, 2014 BY Travis McPherson
CATEGORY Coalspur Mines, Colin Steyn, Stories,

(Photo: Ty Wright/Bloomberg)

As the coal market continues to remain soft, especially in the currently oversupplied thermal coal sector, Coalspur Mines (CPT:TSX) is doing everything it can to remain solvent. That challenge has now forced two of the largest shareholders off of the Board.

Coalspur recently announced that Colin Steyn and Peter Breese would be resigning from the Board. The rationale behind the move is that the two mining entrepreneurs are both affiliated with Borrowdale Park S.A. which is Coalspur’s largest shareholder and a significant secured creditor of the company.

President and CEO, Gill Winckler, said: "We will miss the valuable contributions that have been made by both Colin and Peter over the past few years. However, if they had remained on the board, they would have been required to exclude themselves from all discussions and decision making, which could potentially impact Borrowdale Park's position. Such matters are likely to constitute a significant proportion of the company's business in the immediate future. We look forward to their ongoing support as shareholders of the company."

Borrowdale owns roughly 154 million shares of Coalspur once worth nearly $350 million are now worth $9 million (at $0.06 per share).

Colin Steyn (Photo: Sunday Standard)

Mr. Steyn said: "It is with regret that I am resigning from the board of Coalspur. However, I believe this decision is in the best interests of the company as it undertakes its strategic review process. Both Peter and I, as well as Borrowdale Park, remain fully supportive of the board and the company and look forward to Coalspur's next phase. I would like to thank management and my fellow directors for their tireless support and contribution during my chairmanship, and wish them and the company all the best for the future."

Mr. Steyn (and Mr. Breese) has an impressive track record although Coalspur and a previous deal Mirabela have both suffered from steep underlying commodity price declines and solvency issues.

Previously Mr. Steyn was a founder and the President/CEO of LionOre Mining International which was acquired by Russia’s Norilsk Nickel for $6 billion. He then rolled the proceeds into Mantra Resources which was a uranium explorer and was sold in 2010 for over $1 billion to Russian nuclear holding company ARMZ . Mantra netted Steyn over $120 million.

Following those wins, Steyn invested significantly in Mirabela Nickel which had nickel assets in Brazil. Unfortunately, the nickel price tanked as the company built its nickel mine and was forced into receivership as a result of mounting debt. He owned over 50 million shares in that deal. Recently Mirabela came out of receivership but Steyn resigned from the Board in January of this year.

Coalspur has yet to face the same fate as Mirabela although it looks it could go that way.

Shares have been decimated over the past few years, falling from over $2.00 per share to $0.06 today. Fortunately for Mr. Steyn he is a large shareholder of African gold developers Asanko Gold and Papillon Resources (Papillon is the subject of a takeover by B2Gold valuing the company at $570 million).

Coalspur has been working to finance their Vista Coal Project, but the Phase I capex estimate of $478 million has proved to be hard to finance in this thermal coal price environment.

The Vista Coal Project has the potential to reach 12Mtpa of clean coal production (Image: Coalspur Mines Ltd.)

As a result, their largest lender (EIG Global Energy Partners) has offered a lifeline in the form of a highly-conditioned $10 million bridge loan that requires the company undergo a ‘comprehensive sale process’ for 100% of the project.

The company rejected a partial project finance package totalling $175 million from EIG because they claimed it wasn’t enough.

Now that company is forced to repay $71 million in principal, interest and fees to EIG by March 2015. Coalspur also still carries Borrowdale’s $33 million in debt which matures in December 2017.

Analyst’s have cut their targets for the company, with Haywood Securities’ latest piece stating the company was ‘under review’ and have dropped their target price by over 70% citing the uncertainty surrounding the company’s ability to remain a going concern.

In December, the International Energy Agency published their Medium-Term Coal Market Report which stated that given a Chinese policy shift towards more green energy sources, coal demand growth will slow slightly over the next 5-years.

The agency estimates coal demand will grow at 2.3% annually for the next 5-years, compared to 2.6% over the previous 5-years.

“Like it or not, coal is here to stay for a long time to come,” IEA Executive Director Maria van der Hoeven said at the launch of the book. “Coal is abundant and geopolitically secure, and coal-fired plants are easily integrated into existing power systems. With advantages like these, it is easy to see why coal demand continues to grow. But it is equally important to emphasise that coal in its current form is simply unsustainable.”

Historical Coal Prices - Coal Price History Chart

China consumes 60% of the global coal supplies, a trend that is expected to remain constant for the foreseeable future despite less growth there.

If Coalspur is able to pull a rabbit out the hat and survive the next 12 months, shares could rebound in a big way giving investors with a strong stomach the opportunity to make a bunch of money.

For me, personally, the risk is too great for the return I can foresee so I won't be joining the party.

A couple of days ago Canadian-listed Corsa Coal (partially owned by the Lundin family) acquired PBS Coal (metallurgical and thermal coal) from Russia's OAO Severstal for $60 million. Corsa's shares jumped 55% today after shares resumed trading. Severstal acquired PBS in 2008 for $900 million.

Read: Coalspur Announces Changes to the Board of Directors

Related: Confronting Coal

Travis McPherson

trav@ceo.ca

Travis McPherson

trav@ceo.ca

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