Contura fires up for third Coal Company IPO in 2017
The current US administration has been favorable to the coal energy industry, and companies have been taking notice in the market. Contura Energy Inc., based out of Tennessee’s Bristol, announced that it would be adding to this list soon with an IPO announcement on Monday.
Contura Inc. (Pending: CTRA) has only been in operation since 2016. The company was formed when another energy industry company, Alpha Natural Resources Holdings, went bankrupt. The assets formerly listed for the insolvent company went into the formation of Contura. Contura retained Alpha’s CEO Kevin Crutchfield as its president and so far seems to have been doing better than its predecessor. There are concerns however that Crutchfield’s leadership may make investors take a step back from the IPO.
Contura acts as a mining firm as well as a marketer in the coal industry. It has three current bases of operation namely the Central Appalachian (CAPP), Northern Appalachian (NAPP) and Powder River Basin (PRB) plants. These plants are scattered over various areas including the Wyoming, Pennsylvania, and Virginia regions. Two of the plants, the NAPP and PRB, mainly yield thermal coal which is less valuable compared to the MET coal that the CAPP plant produces. Thermal coal is mainly used to generate electricity while MET coal is used in carbon-based steel production.
Contura filed with the SEC with a placeholder amount of $100 million. The class and number of shares on offer for the coal mining firm’s issuance was not disclosed in the Monday announcement. However, analysts estimate that the deal may end up being worth about $300 million. If you consider that the market for the coal industry has picked up since the beginning of this year, the second figure sounds like the better estimation in fact. Citigroup will be the only firm advising and underwriting Contura through the whole IPO deal.
As it heads towards a debut in the public trading sector, Contura has the odds in its favor. In 2017 many regulations against the coal mining business were lifted. The reduced regulations in the coal industry increased the demand for this product. Coal is now demanding good market prices, a bonus for any investor looking to channel funds into the industry. Contura also shows promise as a single entity. Contura, the records indicate, had an EBITDA of approximately $103.7 million in 4Q16, along with $44.3 million in operational profit for the same period. For 2016, sales in the company alone brought in an about $1.3 billion in revenue. The figures for the company are impressive because Contura was only incorporated in the second half of 2016.
With the coal mining business booming, now may be a good time for investors to get a chunk on the market. There are risks associated with buying into the Contura IPO though. On the one hand, an investor could get significant returns over a short period. On the other hand, those returns could be short-lived because of the ever-changing regulatory climate of the coal industry. The fact that Contura relies on MET coal should make investors think twice as well, because MET coal prices are more uncertain than those of thermal coal.