Author Topic: FELP - Foresight Energy  (Read 299087 times)

indirect

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Re: FELP - Foresight Energy
« Reply #50 on: April 01, 2016, 12:28:49 PM »
Deer run mine is now closed. How will this affect CF in your models?
I think this action was part cost cutting and part hardball with bondholders.


Picasso

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Re: FELP - Foresight Energy
« Reply #51 on: April 01, 2016, 12:39:29 PM »
In the short run it's pushing costs from $22/23 to $28/ton. That leaves them with almost no free cash flow in the short-term. The timing on this fire is kind of funny because of the bondholder dispute. I'd like to think it makes it easier to settle but who really knows. Foresight should have settled this before it got to that court decision.

RadMan24

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Re: FELP - Foresight Energy
« Reply #52 on: April 01, 2016, 10:17:58 PM »
In the short run it's pushing costs from $22/23 to $28/ton. That leaves them with almost no free cash flow in the short-term. The timing on this fire is kind of funny because of the bondholder dispute. I'd like to think it makes it easier to settle but who really knows. Foresight should have settled this before it got to that court decision.

...have they not consistently had troubles with that mine? It is not one that I was surprised to be shut down, nor should it be a surprise costs go up. But up $5 a ton? When the debt load is high and increasing, revenues dropping, it just doesn't work out well often.

Picasso

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Re: FELP - Foresight Energy
« Reply #53 on: April 03, 2016, 12:51:00 PM »
Sorry it shouldn't be up by $5/ton.  I went back through the last time they had a fire at Deer Run and even though it was only a month of downtime versus several months so far, it didn't have a material impact on the costs per ton.  They already booked about 20 million tons for 2016.  Part of the reason costs were so high in 4Q was that production was down big from the Deer Run fire, but it's getting replaced by another mine so we should see that shift by the time they announce earnings; if they make it to next earnings.  If this Deer Run things never gets fixed then I think you're looking at closer to $23-25.  Maybe $10 EBITDA margins per ton in that environment?  $200 million EBITDA minus $75 million for capex leaves $125 million for the interest payments and equity holders.  Not a ton of wiggle room but this is the point where there is a lot of operating and financial leverage.  Costs are about as high as you'll ever get, ILB coal pricing is at or below average production costs (based on what I see from numbers disclosed from other ILB producers), and the interest payments are eating up most of the free cash. 

Whereas in the bearish scenario above you're looking at only $8 million of DCF, if they can get 25 million tons out @ $15 margins, you suddenly have $183 million of DCF again.  I really don't think 25 million tons at $15 margins is that crazy of an assumption for these guys. 

If there was no change of control default nonsense going on and I looked at the units @ $1 and tried to gauge the probable future earnings potential, it looks massive.  Several multiples of the current market cap.  So these trough conditions suck, especially because of the debt expense, but the equity is insanely geared to any positive turn and that's usually when you buy these stocks.  It's generally a terrible idea to buy any commodity producer when they're earning super high returns.  It might not mean this will turn out to be a good idea but more often than not this situation works well over time.  It helps that you have a bunch of stakeholders who either need this to work out or have substantial financial incentives to make it work.

awindenberger

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Re: FELP - Foresight Energy
« Reply #54 on: April 05, 2016, 10:48:59 AM »
I wonder why the spike up today; no news yet so I wonder if we will see a positive news release after the close.

bigbadwolf

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Re: FELP - Foresight Energy
« Reply #55 on: April 06, 2016, 05:46:58 PM »
Side business in Canada: Kameron Collieries

Is Cline focusing his efforts on country that is more friendly towards coal - due to high unemployment in the energy industry?  It seems more politically acceptable right now in Canada.   

Picasso

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Re: FELP - Foresight Energy
« Reply #56 on: April 06, 2016, 07:28:31 PM »
My best guess is he sees an opportunity to recreate in another geography what he built at Foresight.  He also bought these coal assets in Canada fairly cheap and almost like a long-term call option.  Just looking at some of the various moves since 2010, he is a decent investor in the space.  Which is sort of weird because the bondholders painted a picture of someone who wanted to get away from the coal business. 

Quote
5. By contrast, Mr. Cline gives every appearance of wishing to move on
from a lifetime in the coal mining business and to enjoy the wealth he has created
while pursuing other interests.
« Last Edit: April 06, 2016, 07:37:59 PM by Picasso »

RadMan24

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Re: FELP - Foresight Energy
« Reply #57 on: April 07, 2016, 07:45:36 PM »
Side business in Canada: Kameron Collieries

Is Cline focusing his efforts on country that is more friendly towards coal - due to high unemployment in the energy industry?  It seems more politically acceptable right now in Canada.

Did Canada just not release carbon controls that are designed to eliminate the use of coal? The Coal industry is no longer as valuable as it once was, at this current time to say the least. Assuming and when it does become more valuable is anyone's guess. Cline divested a good chunk of his assets at the time of the IPO, while Murray is determined to be the last man standing, Cline's interests may have diverged. Foresight was brought on the market highly levered, we've seen the result of that so far.

Even a low cost producer is not as strong as being connected to a power plant, like many of WLB's coal mines are, or mine mouths. If you have an advanced coal plant connected to your coal mine, regardless of what happens, as long as you have cost of capital rates, you should survive the brutality of this storm. Foresight relies heavily on transportation to sell more tons and to reach full capacity. In a normal market, this can work well given its low cost structure. In a declining market, it presents various risks that may take longer than normal to revert to sustainable price and volume levels.

I understand that a trade or bet can be made that either Cline or Murray will put more cash to work to settle the covenant breach and CIC event, however, beyond that fix, the upside requires a lot of things to go right to make it work out like a multi bagger. Any restructuring of debt could also have implications on the unit holders, similar to what's going on in LINN Energy I would presume as well.

But I could be wrong :)

Picasso

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Re: FELP - Foresight Energy
« Reply #58 on: April 07, 2016, 08:49:52 PM »
Interesting points.

I'm sort of on the fence about what is better.  1) Connected coal mines at higher costs, or 2) Low cost mines with low transportation costs.  You can make the argument that #1 may not have terminal value if the plant shuts down.  There are some extra risks there to having a stranded asset.  Dealing with that on SunCoke contracts right now.  If the costs are low enough then #2 is viable long-term regardless of connected plants.  But to your point, leverage is an issue.

The LINN debt restructuring is a lot different than Foresight.  Those bonds were at $3 and yielding nearly 300%.  Restructuring out of court at less than par hits the LP's with big tax bills.  Foresight bondholders are simply exercising their rights to a change of control after Murray backed out of paying a $48 million waiver by restructuring the terms of the deal.  A settlement will likely be close to par or some 15 point fee, neither of which will hit the LP's with the kind of massive tax bill the LINN guys are getting. 

Green King

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Re: FELP - Foresight Energy
« Reply #59 on: April 07, 2016, 10:44:25 PM »
Interesting points.

I'm sort of on the fence about what is better.  1) Connected coal mines at higher costs, or 2) Low cost mines with low transportation costs.  You can make the argument that #1 may not have terminal value if the plant shuts down.  There are some extra risks there to having a stranded asset.  Dealing with that on SunCoke contracts right now.  If the costs are low enough then #2 is viable long-term regardless of connected plants.  But to your point, leverage is an issue.

The LINN debt restructuring is a lot different than Foresight.  Those bonds were at $3 and yielding nearly 300%.  Restructuring out of court at less than par hits the LP's with big tax bills.  Foresight bondholders are simply exercising their rights to a change of control after Murray backed out of paying a $48 million waiver by restructuring the terms of the deal.  A settlement will likely be close to par or some 15 point fee, neither of which will hit the LP's with the kind of massive tax bill the LINN guys are getting.

Once this problem is solved. What is your comparable for this ? IE a comparable coal stock without this type debt problems and similar cost structure.
GK