Author Topic: FELP - Foresight Energy  (Read 298875 times)

awindenberger

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Re: FELP - Foresight Energy
« Reply #490 on: October 23, 2016, 09:29:13 AM »
Is there a link to the conference call?

EDIT: I answered my question. Didn't realize Q3 call was this early for SXCP.
« Last Edit: October 23, 2016, 09:30:49 AM by awindenberger »


Picasso

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Re: FELP - Foresight Energy
« Reply #491 on: October 23, 2016, 07:27:04 PM »
Quote
"And we look forward to supporting them and their export needs throughout Convent Marine Terminal. We'll have some more to say about that later, because what we've also seen is pretty significant uptick in price of export coals and the expectation of profitability of export coals for our customers, going forward."
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"At Coal Logistics, the $4.3 million contribution from our Convent facility was comparable to Q3 2015, and KRT and Lake Terminal were impacted this quarter by lower throughput. Volumes across the terminals were below expectations, but we expect a sequential improvement in volumes in the fourth quarter."
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"Let's take a closer look at the increased profitability of those thermal coal exports on slide nine. Low cost U.S. producers still turn a profit when API2 prices were in the mid to high 50s. And with the benchmark in the mid 70s, the mine netbacks are meaningfully higher. We regularly update our estimate of export profitability. And based on our assumptions, our CMT customers are solidly profitable at current delivery prices. While this is an encouraging sign for the thermal exports coming through CMT, we are also looking at incremental business that I will cover on the next slide."
Comments from the SXCP's CEO in yesterday's conference call. So FELP was able to get the rebate should the API2 move down in the 50s. API 2 is in the 70s now and they are seeing higher coal volume at the Convent in the 4th quarter. This is highly accretive to FELP.

Between what's happened with API 2 and the subordinated equity structure, it provides a lot of downside support to the equity where I think it would be really difficult to get screwed on a PIK refi.  Probably shouldn't be trading for around the unpaid distributions given that fundamental improvement.

The MSHA announced 3Q production numbers from FELP which are in line with last quarter and the 3Q in 2015.  So you aren't seeing these big production drops that some earlier on the thread were talking about.  Operating leverage basically got as bad as it was going to get in the 1Q of 2016.

And just for some comparisons.  The 1Y forward on API 2 was $47 this time in 2015.  Today it's $70.  A year ago FELP was at $8 versus $4.50 today.  FELP is highly geared towards export prices because all of it is done with incremental tons on a low variable cost.  So this is obviously positive operating leverage in the other direction.  I believe it's somewhere around $10/ton on about $40 netbacks using the 1Y forward.  Spot is $10 higher. 

Also, spot ILB pricing has started moving up (although not by much) but is higher than it was this time in 2015 when FELP was much higher.  This is partly because nat gas is also about 50% higher than this time last year.  Plus European utilities are having a lot of issues with their nuclear reactors which should support API 2 prices going into the PIK refi.

Not to mention the general sentiment towards coal has changed a lot over the last year.  Companies are exiting bankruptcy and (gasp) providing investors with securities that are actually moving up in price and creating positive free cash flow.  For example see ARCH or CNTE.  I think investors are probably figuring out that coal isn't totally dead.

It's unclear what is going on with Hillsboro.  But given the rest of the assets can support FELP as it currently stands (which still has it worth a lot more than the current unit price) then that's become a weird hidden asset.  Any kind of clarity on that asset will be important and it's not something an investor is paying for at this point.

Some reasons why it's still cheap:

1) Owners get the joy of paying taxes on income they won't receive (since it's a partnership and distributions are being withheld) 
2) Market is probably nervous about the upcoming PIK refi
3) At least one large sell-side firm has dropped coverage coming out of the refi
4) This thing is very illiquid, hard to get any large size for the bulk of fund managers.  If something goes wrong on a big position here, you're trapped.  Float is tiny as heck.

That said, I'm comfortable with all those things.  Others might not be but hey that's what makes a market.  If someone has shares they want to unload in a block trade feel free to send me a message.  As long as you're not Accipiter.  I'm not that rich.

valcont

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Re: FELP - Foresight Energy
« Reply #492 on: October 24, 2016, 07:23:27 AM »
Between what's happened with API 2 and the subordinated equity structure, it provides a lot of downside support to the equity where I think it would be really difficult to get screwed on a PIK refi.  Probably shouldn't be trading for around the unpaid distributions given that fundamental improvement.

I agree. The only way to screw the unit holders is if Cline and Murray get into some kind of agreement to sell FELP to Murray for cheap. Or Murray gives up on FELP and start dumping bad assets on it wiping the equity and the debt.

As a wise man once said  "A mine is just a hole in the ground with a liar on the top" . Gotta be careful.


Picasso

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Re: FELP - Foresight Energy
« Reply #493 on: October 24, 2016, 07:39:20 AM »
Well both of those are extremely unlikely.  It's part of the reason this restructuring took so long.  Cline made sure he wasn't going to get screwed by going in for the bond tender. 

Plus why would Cline sell FELP to Murray on the cheap after coming in to help with the bond tender?  By my estimates FELP can do around $200 million of free cash flow next year because of this API 2 rebound.  That means it probably trades for 3x earnings even including all the Murray subs.  Cline isn't likely to sell at this price.

And Murray can't just start dumping bad assets on FELP because of the conflict committee that was put in place as part of the Cline tender. 

Not that bad things can't happen but I think getting screwed for those reasons isn't likely to be an outcome here.  Maybe another mine catches fire or something.  Or China decides to kill this met coal rally and investors assume FELP will be impacted.  The winter doesn't look like it will be that cold but we'll see what happens to coal inventories.

valcont

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Re: FELP - Foresight Energy
« Reply #494 on: October 24, 2016, 08:40:15 AM »
Well both of those are extremely unlikely.  It's part of the reason this restructuring took so long.  Cline made sure he wasn't going to get screwed by going in for the bond tender. 

Plus why would Cline sell FELP to Murray on the cheap after coming in to help with the bond tender?  By my estimates FELP can do around $200 million of free cash flow next year because of this API 2 rebound.  That means it probably trades for 3x earnings even including all the Murray subs.  Cline isn't likely to sell at this price.

And Murray can't just start dumping bad assets on FELP because of the conflict committee that was put in place as part of the Cline tender. 

Not that bad things can't happen but I think getting screwed for those reasons isn't likely to be an outcome here.  Maybe another mine catches fire or something.  Or China decides to kill this met coal rally and investors assume FELP will be impacted.  The winter doesn't look like it will be that cold but we'll see what happens to coal inventories.
I was just trying to think of the scenarios. I agree they are unlikely. Murray is an old school guy and will not risk his reputation by screwing the unit holders.

As for the China killing the rally. The only thing they hate more than accepting a  bad policy outcome is to go back on the policy. The likelier result will be a slowdown on the implementation that may check further price rally. I do think that will be a much better outcome. Lots of coal companies left for dead are starting to ramp up in Australia. A 20-30% decline in the coal prices will slow it down considerably. Either way FELP is still a "restructuring didn't bring down the company" story.  Coal price rally is an icing on the cake.





awindenberger

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Re: FELP - Foresight Energy
« Reply #495 on: October 24, 2016, 08:52:45 AM »
At this point, it seems like it would be nice for FELP to lock in pricing on a decent portion of their planned 2017 production so they can set themselves up for a strong 2017.

Picasso

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Re: FELP - Foresight Energy
« Reply #496 on: October 24, 2016, 09:02:34 AM »
At this point, it seems like it would be nice for FELP to lock in pricing on a decent portion of their planned 2017 production so they can set themselves up for a strong 2017.

Not to mention the SXCP export terminal will have capacity for up to 15 million tons in 2017. 

awindenberger

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Re: FELP - Foresight Energy
« Reply #497 on: October 24, 2016, 12:15:31 PM »
At this point, it seems like it would be nice for FELP to lock in pricing on a decent portion of their planned 2017 production so they can set themselves up for a strong 2017.

Not to mention the SXCP export terminal will have capacity for up to 15 million tons in 2017.

If they could lock in $20/ton profits on say 10-12Mil tons (not sure how much capacity Murray is responsible for), that would potentially mean even more than $200M FCF in 2017.

valcont

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Re: FELP - Foresight Energy
« Reply #498 on: October 24, 2016, 12:40:10 PM »
If they could lock in $20/ton profits on say 10-12Mil tons (not sure how much capacity Murray is responsible for), that would potentially mean even more than $200M FCF in 2017.

In the case of commodities, market usually discounts forward prices but FELP's case is interesting. There is a big overhang on the stock due to the PIK refinancing next year. If that path gets some clarity because of higher pricing hedges, FELP will be repriced close to where ARLP is since the debt ratios will be lot better due to higher earnings.  From there on , its a commodity stock.

What really surprises me is that at today's prices , you are locking in $2.00 of distributions before Murray can assume control.

valcont

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Re: FELP - Foresight Energy
« Reply #499 on: October 24, 2016, 01:39:56 PM »
What a jump today!! Looks like market is figuring this one out.