The key issue for SMR will be how long the coal prices remain at historical highs. Bearing in mind we are not yet at august 2022 when the EU coal embargo on russia comes into effect. Russia supplies 30% of EU PCI coal requirements so this will benefit pricing in that part of the coal price spectrum and in turn benefit SMR. If the pricing holds up SMR will be able to strengthen its balance sheet very quickly. however as CRN and WHC are ahead of SMR from a stregth of balance sheet perspective investors may discount SMR in a rising interest rate envirment if the price outlook deteriorates.
I personally see out performance by SMR with the assumptions that:
1. we will see higher prices for longer - due to the protracted dislocation of russian coal and the inability to bring more coking coal supply into the market quickly (ESG, external finance availability, disciplined companies holding the production assets, slow environmental approvals on new mines etc) 2. rapid risk reduction of its balance sheet 3. Quality customer base of the BMC assets which could be leveraged for their other operations
SMR Price at posting:
$2.33 Sentiment: Hold Disclosure: Held
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