Coal, the energy source that’s the bane of climate activists everywhere, is still one of the cheapest sources of electricity. Natural gas-powered plants are the closest cost substitutes; otherwise, the key risk to this industry comes from government mandates on sourcing renewable energy.
CONSOL Coal Resources LP (CCR) is a master limited partnership listed on the NYSE that holds a 25% interest in the Pennsylvania mining complex that includes three coal mines: Bailey, Enlow Fork, and Harvey, along with a centralized coal processing facility. The balance 75% is owned by Consol Energy (CE).
CE is also the parent of CCR - owning 60.8%. The public float is 17.6% and doesn’t have much say in governance matters. This situation will also prevent the manifestation of any takeover premium for this stock.
The three mines have coal reserves of 767m tons with a life of 23.5 years at current production rates.
CCR sells 66% of coal to US electricity generators, 1% to other domestic purchasers, and the balance 33% is exported.
The company generated revenues of $327m and ebitda (a proxy for cash earnings) of $99m in 2019. Cash interest was $7m and maintenance capex was $36m leaving distributable cash flows of $56m. CCR isn’t subject to income tax – distributions are taxed in the hands of partners. (Taxes are withheld at the highest effective rate for foreign partners.)
CCR owes debt of $181m to CE at 4% interest - or just under 2x ebitda. This appears to be on the edge of conservative limits but it’s unlikely to be a source of embarrassment due to their economic relations and it's due only on December 28th 2024.
CCR authorized repurchase of up to $50m of its own stock and purchased stock in the $14-18 range. CE also purchased stock as late as May 2019 at $17 per share.
Management committed to quarterly distributions of $0.5125 per unit (share) or $2.05 per year. On April 24th, however, they temporarily suspended distributions as a result of Covid-19 uncertainties, and suspended operations at the Enlow Fork mine.
This has smashed prices to $5.08 per share or a market cap of $138m.
This price represents a trading multiple of just 2.5x last year’s distributable cash flows (before personal taxes). If CCR can get through this phase, and there doesn’t appear to be a strong reason it can’t, this price could turn out to be a steal.