Summary
Warrior Met Coal LLC (Pending:HCC) filed an S-1/A with the Securities and Exchange Commission on April 3, 2017, for its upcoming initial public offering. The company intends to sell 16,666,667 shares at a marketed price range of $17 to $19. The company has an additional 2.5 million shares as an overallotment option for its underwriters. Assuming it prices at the mid-point of its price range, the company will have a market cap value of $1.00B and trade at a price/sales multiple of 2.73x.
Warrior Met Coal LLC was formed to acquire the assets of Walter Energy, through the predecessor's bankruptcy filing. The company will not receive any of the proceeds from its IPO. Instead, the proceeds will be paid to its selling stockholders.
The underwriters for the IPO include: Credit Suisse, Citigroup, Morgan Stanley, BMO Capital Markets, RBC Capital Markets, Apollo Global Securities, Clarksons Platou Securities and KKR.
Business overview
Warrior Met Coal LLC is an exporter and producer of premium coal. It is based in Brookwood, Alabama and operates two mines it characterizes as highly productive in the state. The company reports that it is the largest seaborne met coal provider in the Atlantic Basin and among the top 10 suppliers globally. The two mines have an estimated annual production capacity of 7.3 million metric tons of coal and approximately 107.8 million metric tons of recoverable reserves.
(S-1/A)
Executive management
The chief executive officer and a director of Warrior Met Coal LLC is Walter J. Scheller III. Previously, he served as the CEO of Walter Energy from Sept. 2011 to March 2016, the predecessor company that was acquired by Warrior Met Coal LLC in 2016. Scheller also served as the chief operating officer of Jim Walter Resources Inc. from June 2010 to Sept. 2011.
Scheller has more than 32 years of experience in the mining industry and has served in numerous executive roles at different companies. He holds a Juris Doctor from Duquesne University, a Master of Business Administration from the University of Pittsburgh and a Bachelor of Science in mining engineering from West Virginia University.
Dale W. Boyles is the chief financial officer of Warrior Met Coal and has served in that role since Jan. 2017. Prior to that, he served as the DFO of Noranda Aluminum Holding Corporation from Nov. 2013 to Nov. 2016. Boyles served in several executive positions at Hanesbrands Inc. from 2006 to 2012, and he served in numerous other executive and management roles dating back to 1993 for various companies. Boyles holds a Bachelor of Science in accounting from the University of North Carolina.
Financial highlights and risks
Revenue decreased from $544.7M in 2015 to $369.0M in 2016 due to weak met coal market conditions. It has not yet produced profits and generated a net loss of $310.6M and $64.4M in 2015 and 2016. As of December 31, 2016, HCC had cash and cash equivalents of $150.0M and total liabilities of $384.6M.
At its proposed price range, HCC would trade at a 2.73x price/sales ratio. This is below the average 10.88x price/sales ratio for the oil, gas & consumable fuels ratio.
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(S-1/A)
Conclusion: Stay Away From The Smoke
Volatility in commodity prices and the fact that its predecessor was forced to file for bankruptcy protection add risk. In addition, 100% of shares are from selling shareholders, which may not bode well for company insiders' long-term confidence in the company.
We recommend sitting this "coal" IPO out.
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