some great insights on this thread. It is a very technical deal,...

some great insights on this thread. It is a very technical deal, and I for one have learnt a few things from reading through the discussion. This is what this forum is all about!

although still not 100% clear all the technicalities of the arrangement, the basis for the issue of the note the is clear - the board feels the need to raise $200 million.

so the question is, why? this still has me puzzled, given they must now be circa $100 million net debt and generating $50 million cash per month at current coal prices.

sab8 has identified some possible reasons. Let’s look at each:
1) buy out remaining 20% bengalla. Nhc bought 40% for $860m a few years ago. simplistically, that implies circa $430m for the remaining 20%. Obviously price may have moved since then but that is a ballpark number. I think this is viable, although my understanding is that the 20% holder, taipower, is a key customer and perhaps strategically is worth keeping as a shareholder. Also, they increased their shareholding from 10 to 20% at the same time nhc went to 80% so they appear a buyer, not a seller. Overall my gut feel is that this is not the reason
2) other Newcastle coal player. Maybe, a few potential options have been discussed on this thread. And I am not sure why it would only be Newcastle. Queensland players also possible. i think this is the most likely option, as there are a number of bigger players who are looking to exit coal for altruistic virtue signalling reasons. I would be confident that nhc board would make prudent and value creating acquisition if this was the case. They have a great track record.
3) new acland start up. I don’t see this as realistic. There has been no positive announcement on this front, and in any case, I would think the costs could be easily managed from operational cashflow
4) old acland remediation. No. Again, would be easily
funded by current cashflow
5) Newcastle port berth buyout. Not sure on this one but highly unlikely. I don’t see it as core business for nhc.
6) buying whsp / Milton: no chance. Nhc are not an investment company.
7) general working capital. No. Just doesn’t make sense given they will be debt free based on current cash flows within a few months
8) the other option not mentioned is capex to expand bengalla to 15 million tonnes pa output as per existing license. Current max output is stated as 12 million tonnes. For me, this is the most logical investment that nhc can make and will likely deliver the best return on capital. however I am not sure of the capital required. That said, it is hard to imagine the capital being more than $200 million. Again, there appears no need to raise funds for this investment, given current cash generation.

so, the only logical explanation for the note issue that I can come up with is a fairly significant acquisition of circa $400 million +. This is also consistent with the messaging in the convertible
note Announcement.

happy to hear any alternative views!