Australian-headquartered Tigers Realm Coal is unlikely to develop its Amaam coal project in the Russian Arctic any time soon.
Tigers Realm Coal’s financial statements for the first half of 2015, which were released last Friday, reveal a tale of corporate woe.
There was a massive writedown on the value of its only significant coal asset, a big loss racked up in the first half of the year, fast-diminishing cash reserves and a grim outlook for the seaborne metallurgical coal market. And, the company’s auditors flagged the possibility that before too long the company might not be able “to continue as a going concern.”
Tigers Realm Coal is facing opposition to the project from indigenous landowners, while the collapsing export price for metallurgical coal has made attracting commercial financial support next to impossible. (ANZ is the company’s banker.)
The project, which has been touted as producing up to 6.5 million tonnes a year, is one of a handful of major new projects supported by Russian government agencies as part of a push to increase exports into the Asian coal market.
Early last week Tigers Realm Coal warnedshareholders that the asset value of the Amaam and Amaam North projects could be written down in its first half financial report, by somewhere between A$145 and A$155 million.
In was even worse than that. On Friday the company announced the value of the two projects would be written down by A$171.820 million which the company largely attributed to “a significant deterioration” in the estimated long-term hard coking coal price. Following the writedown the company now lists the Amaam Project – the largest of the two coal deposits it is looking to develop – as being worthless.
The Amaam North Project started out as a Plan B fallback after the company realised that it was proving impossible to attract finance to support the larger and more expensive Amaam Project. At first Tigers Realm Coal touted ‘Project F’ in the Amaam North Project as being a one-million tonne a year project costing US$133 million.
Early last week the company flagged that even that was looking too ambitious and it is now investigating a version of the project which would produce just 200,000 tonnes of coal a year and cost US$25 million to build. However, after last week’s asset writedown the company now lists the Amaam project as being worth just over US$17 million.
For the project to be viable Tigers Realm Coal needs the metallurgical coal price to increase, the Russian ruble to remain steady against the US dollar and the company’s estimates of mine construction and operating costs to be accurate. A small adverse shift by one factor – let alone all of them – would cripple the project and could be fatal for the company.
For example, the company notes (p. 29) that a reduction in metallurgical coal prices of just 5 per cent would slash the value of the project by US$16.5 million. (The company assumes that over the life of Project F it would sell coal for between US$92 and US$120 per tonne.)
It is worth bearing in mind that 5 per cent at the bottom of the company’s estimated metallurgical coal price range is just $US4.60. Since the company released its statement last Friday it has been reported that the latest quarterly benchmark price for premium metallurgical coal sold under contract is US$89 a tonne, down just over 4 per cent on the previous quarter and now down 30 per cent since the start of the year. Tigers Realm Coal has stated that Project F coal would sell for about 15 per cent less than the benchmark coal price.
In short, the company has an asset it values at just over US$17 million and a project which would cost at least US$25 million to develop but which it doesn’t have finance for. To cap it off the metallurgical coal price keeps falling, making the prospects of attracting finance look pretty unlikely even for a scaled back version of Project F.
While Tigers Realm Coal plans on continuing its exploration work at the project site, the company’s cash reserves are running down. By the end of September the company will have about A$10 million in cash left with the prospects of mining coal becoming ever more distant. The company notes that its ability to fund works beyond September 30, 2016 “is uncertain.”
Unsurprisingly, the company’s auditor – Michael Bray from KPMG – notes in his audit report that “there is material uncertainty as to whether the Group will be able to continue as a going concern and, therefore, whether it will be able to realise its assets and extinguish its liabilities in the normal course of business and at the amounts stated in the interim financial report.”
In other words, Tigers Realm Coal is skating on very, very thin Russian Arctic ice.
TIG Price at posting:
6.0¢ Sentiment: Hold Disclosure: Held
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