For miners of coal, TSX the place to go public
ANDY HOFFMAN AND ANDREW WILLIS
Wednesday, June 11, 2008
Soaring commodity prices have triggered an avalanche of coal miners looking to go public in Canada, including a Pennsylvania producer considering a listing that could value the company at about $1-billion, according to sources.
PBS Coals Inc., a private company that produces three million tonnes of mostly metallurgical coal a year in Somerset County, Pa., is close to seeking a listing on the Toronto Stock Exchange, sources familiar with the matter said.
If the deal proceeds, which may take the form of a reverse takeover and a subsequent share sale, PBS could raise as much as $300-million. Sources said investment bankers working on the file are running a so-called “dual-track process” that could see PBS sold in a private transaction to another mining company instead of going public.
“The success of companies like Fording [Canadian Coal Trust] and Grande Cache [Coal Corp.] has stoked investor interest in these coal plays,” said one banker working with a number of private mining companies.
An out of favour investment for years, coal miners are suddenly hot.
Demand has surged for both metallurgical coal, which is used to make steel, and thermal coal, which is used to generate electricity. In addition to PBS, another U.S. coal miner called Phoenix Coal Inc. is set to rise on the Toronto Stock Exchange.
Phoenix is in the midst of a reverse takeover that will create a $100-million mining play. The company owns 11 coal properties in Kentucky, along with long-term contracts to supply fuel to 10 U.S. utilities. A shell company named Marimba Capital Corp. will issue equity, then use the money it raises from investors to purchase the Phoenix properties and take its name. The offering is expected to be priced within the next week.
The underwriting is led by Dundee Securities Corp., and bankers said there was keen investor interest in Phoenix, reflecting strong performance by other U.S. coal IPOs over the past year and bullish prospects for the fuel as the U.S. attempts to lessen its dependency on foreign oil. Coal generates 50 per cent of U.S. electricity. Thermal coal prices have recently hit as much $150 (U.S.) a tonne.
Prices for metallurgical coal, meanwhile, have jumped to as much as $300 a tonne for 2008 contracts from roughly $100 last year. Flooding in Australia has curbed coal production amid rising demand for steel from the booming economies of China and India.
Canada's Elk Valley Coal – a partnership between Calgary's Fording Canadian Coal Trust and Vancouver-based Teck Cominco Ltd. – recently negotiated 2008 coal year contract prices with customers averaging $275 a tonne, compared to an average $93 a tonne in 2007. Units in Fording, which put itself up for sale in December, have gained 110 per cent so far this year.
A public listing for PBS, which hopes to increase annual production to as much as five million tonnes by 2010, would be backed by two of Canada's biggest names in the resource sector. Sprott Resource Corp., which is affiliated with Eric Sprott's investment firm Sprott Asset Management, is a major PBS shareholder. Vancouver's Lundin family resource empire also has a stake in PBS.
The company's chairman is Colin Benner, the former head of EuroZinc Mining Corp. and the current chief executive officer of Skye Resources Inc., a Vancouver junior developing a nickel project in Guatemala. Mr. Benner is a former CEO of Lundin Mining Corp. and is still on the Lundin board.
The Lundin family's stake in PBS has not been disclosed. Sprott Resource controls about 32 per cent of PBS and paid a total of $55-million for the stake in two private transactions.
“We believe the price of metallurgical coal will stay strong for some time, due to a structural deficit in the market,” Kevin Bambrough, the president and CEO of Sprott Resource, said in a statement last month announcing a second investment in PBS.
Mr. Bambrough did not return calls yesterday, but in a recent presentation to shareholders said that his company anticipated PBS to complete a “going public transaction” in 2008 or 2009.
Officials at Cormark Securities Inc., which is understood to be leading the PBS deal, would not comment. |
