June 12, 2025 • 37 mins
There has hardly been news in the mining world that’s left us as stunned as Tether (yes, the crypto company) buying a huge stake in royalty group, Elemental. We had to unpack it.
On the other end of the spectrum, a struggling coal minerCoronado has had all sorts of financiers and competitors circling, as its stock plummets. We ask the question, what does the future hold for shareholders?
.……………
TIMESTAMPS
(00:00) Introduction
(02:35) A better business than Franco
(04:24) Why is Tether doing a royalty deal
(09:06) Tether Gold
(18:15) Why Coronado caught our eye
(23:00) Who could save CRN
(36:00) Virtual AGM’s – Yes/No?
……………
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PARTNERS
Thank you to the mining services businesses that make this content possible:
Mineral Mining Services – Your preferred mining contractor - 1300 546 117
Grounded - Infrastructure for remote mining and civil projects Australia wide | Paul Natoli: pn@groundedgroup.com.au
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CRE Insurance – Insurance Brokers for the construction, resources and energy sectors | davidh@creinsurance.com.au +61 2 9493 6100
K-Drill – Safe, reliable, and productive surface RC drilling | Ryan O'Sullivan: ryan@k-drill.com.au +61 427 783 190
Cross Boundary Energy – Independent power producer for the global mining industry | tim.taylor@crossboundary.com +61 466 184 943
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DISCLAIMER
All information in this podcast is for education and entertainment purposes only and is of general nature only. Please ensure you read our full disclaimer.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Over 5 billion in physical gold bars on the balance sheet,
Tether has been pouring their profits into gold.
Like a small country. Yeah, and enormous they are.
They're buying a lot of gold. These guys are gold bulls.
JD, you thought that Franco Nevada had the most beautiful
(00:22):
business model in the world. And it is.
It is up there, I assure you. I'm going to tell you why
There's an even better one than that and it's Tether.
Stay with me here. And they've just done a deal to
buy a mining royalties business.I'm going to talk all about it
today. Mate, we're also going to talk
about coal, one of the most fascinating names in the game at
the moment, Coronado. They're getting battered from
(00:44):
all ends. They need a saviour though, and
we're going to dive into whetherthey will find that.
Saviour talking about coal and crypto.
I don't know if our yeah, the people that that love Bunny mum
will be paying attention to thisjourney, but they're they're
riveting stories. I can't wait.
You know what else I can't wait for?
Before we talk about the latest and the greatest in the mining
world, we need to talk about a certain GC grounded
(01:04):
construction. I know you're a you're a keen
reader of the Financial Review AFR.
I am indeed. And you might have caught this.
I saw this headline just this week.
Lavish food and luxury FIFO workers just want a good night's
sleep. That's the finding of the most
comprehensive study of workers in mining camps, which
researchers hope will help resource giants keep staff.
(01:25):
Happy. Do you know what that sounds
like to me mate? That is more confirmation for
anyone out there that if you're going to build a mining camp,
you need grounded. That should be your first call.
Make 170 projects completed, $1800 delivered and work across
nearly 300 assets. Enormous.
Goes beyond that as well, mate. They've worked with FMG, they've
worked with Rio, they've worked with Goldfields, just to name a
(01:45):
couple of their great partners out there.
Look. Here's the thing, the FIN survey
is probably the best insight we've seen into what workers
actually value. And we know if workers are
happy, they're more productive, but what are those top points
that they care about, mate? These are the points that your
miners really care about. They care about noise
insulation, they care about roomsize.
They care about the ability to personalise their room, room
(02:08):
aesthetics as well as the overall camp design.
That just to me, it's like I know the solution, you've ratted
off the problem, but I already know the solution.
So but it's kind of it all makessense, right?
You kind of insulation. Yeah, well, you don't want to be
awake from the noise near the camp like you need sleep. 100%
mate if you want to keep the campers doing the hard yards out
there, the guys and girls working in the mine happy, just
(02:30):
give grounded construction a call mate.
I will indeed. I look forward to calling Paul
Natalie. OK, you probably didn't see this
coming because the world's largest stable coin issuer,
Tether, yes, the same Tether behind USDT has taken a
meaningful stake in a in a gold and copper mining royalty
company, elemental Altus royalties.
(02:51):
And I don't think it's a side bet.
I think this is a signal. Yeah, I I wanted to like,
underline and highlight what yousaid there.
Like this is so fascinating. It's it's so interesting.
So why don't you start us off byjust saying first who tether,
tether investments are and then secondly about elemental out as
the the royalty group? Yeah, well, Tether investments
(03:11):
like think of them as a assistant entity of of Tether.
The stable coin issue up. They've acquired this 34% stake
in Elemental Otis Royalties. That stake came by paying
122,000,000 Canadian dollars to Lamancha.
You remember Lamancha? JD had him on the show.
Mate had had, Yeah, we did. We had groom groom on the Greek.
A lot of time. To be on the show, yeah, but but
(03:32):
that's of course the the resource fund of the Egyptian
billionaire, the grip size. But Tether didn't stop with the
34% stake and now simultaneouslywith the deal, they got this
option to buy another 14% of Elemental from A1 for another
53,000,000 Canadian dollars, which if they exercise the
option that would leave Tether with a 48% stake in in Elemental
(03:54):
alters. And on Elementals side, they're
one of the smaller listed royalty companies out there with
just a a couple of producing royalties and and a lot of
development ones in their portfolio.
A couple in our backyard mate. Yeah, indeed, their, their like
portfolio is, is gold dominant and, and the flagship royalty
(04:14):
there is, is Karla Window. That's a 2% NSR over Capricorn's
color window. But they've also got this 0.5%
NSR over Lundin's Casarones. And yeah, but a very gold
dominant portfolio. OK, so so dive into what what
makes you so interested about this deal and what things could
look like going forward. This is Tether, like a lot of
people have probably heard of Tether and a lot of people are
(04:36):
suspicious of Tether and a lot of people, you know, like there
was a lot of a lot of a lot of kind of like negative thoughts
and views out there about, aboutTether.
But I just want to pause all of that for a moment.
And so I don't think many peopleare actually aware of just how
phenomenal the business model of, of Tether is.
It's utterly insane how good of a business this is.
(04:58):
And it's so simple. Tether popularized the tokenized
stable coin U.S. dollars is of course the the flagship product
there, which they wrap into USD T And it turns out there's a
huge amount of demand for cryptonative U.S. dollar, mainly
because people want to use that in the many online casinos that
are crypto exchanges and associated products of that
(05:20):
ecosystem. You give Tether $1.00, you
receive 1 USD T just Tether stable coin in return, right?
You can use that USD T in cryptomarkets, think DFI apps,
etcetera. Now Tether, what they do is they
keep your $1.00 instead of putting it in a vault.
They invested mostly in short term U.S.
(05:41):
Treasuries which are yielding like 5% plus per year.
Tether earns interest on your dollar JD.
They don't pay you any interest though.
So you hold a digital IOU which is a USDT not a deposit.
Tether keeps 100% of that yield,which is attractive at the
moment. They have issued over 150
(06:03):
billion USD T That is a staggering number to sort of
conceptualize. Now even if only 80% of that is
backed by treasuries, that's 120billion U.S. dollars earning 5%
annually. That's over 6 billion in annual
profit from the treasury interest alone, with a tiny team
(06:26):
to the House of like 125 staff and like effectively negligible
operating costs. Phenomenal.
There's not too much more to be to be set on it.
It's just it's incredible. It's it's good business if you
can get it. Crazy.
It's yeah. Like they print digital dollars,
they earn interest on real dollars, and they give holders
(06:49):
none of it. That's like why it's the most
kind of profitable company you've never heard of and never
seen audited. But you know, irrespective, you
kind of have to just respect theoperational efficiency of that
business model, which is experience like tremendous
tailwinds, but just tremendous like market dominance,
tremendous growth in all, in allaspects.
It's a truly phenomenal business.
And in the mining industry, we have our own truly glorious
(07:09):
business models being the royalty companies.
You only need a handful of of staff, right?
You collect a check every month from your royalties and it
scales so well. You never need a big team as
your revenue grows in theory, right?
So Franco Nevada being kind of the industry leader for for a
very long time and I always findit astonishing to learn the, the
profit of that business for, forso few employees.
(07:33):
Like take the 2024 numbers of Franco, their net income is
$552,000,000 and a head count of45 people.
That's $12.3 million in profit per employee at Franco Nevada.
Like there is not a mining company in the world that could,
could achieve that, but a royalty company can because of
the beautiful, the beautiful model that a royalty is.
(07:53):
It's a staggering number, and you would have a tremendously
hard time finding a business that comes kind of close to that
in any industry, except I happened to know one, JD.
Let. Me guess in 2024, get this
profit, an astonishing 13 billion U.S. dollars on an
employee headcount of like 125, right, That's 104 million profit
(08:15):
per employee that yeah, the operational efficiency is just,
yeah, unparalleled. That's eight times Franco Nevada
is profit per employee who I thought would be impossible to
be. So whatever your opinion of of
crypto is, Tether is just a truly tremendous business and
both Tether and royalty companies operate with lean
teams and high margin business models.
(08:36):
All right, pulling it back to the deal now.
I I really want to point out a couple of lines from the
announcement out of out of tether right now.
I'll read these quotes Out says.The acquisition was made as part
of Tether investments growing commitment, tangible assets and
precious metals as part of its broader vision to enhance the
transparency, utility and accessibility of digital assets
(08:57):
backed by real world value. This investment reflects our
long term confidence in the fundamentals of gold and its
critical role in financial markets.
Elementals royalty model provides diversified exposure to
gold production around the world, aligning strategically
with our vision or Tether gold and future commodity backed
digital asset infrastructure. It's a bit to take in there,
(09:18):
right? But to start with, I want to
hone in on that last sentence where Tether's CEO mentions
Tether Gold specifically. And you know that glorious
business model I described of Tethers as it related to USD T?
Well, Tether has another product, a much more nascent one
called XAUT or to the Gold and the concept is similar.
(09:40):
You know, it's this gold backed digital tokenized asset.
At the moment there's 150 billion USDT in circulation yet
to the gold or XAUT only has about 0.5% the the the size in
in circulation of 246,000 ouncesof gold you can think of that's
like U.S. Dollar terms like just less than
(10:01):
600 million at our current market value.
But there's a big difference with the business model.
There is like the economics aren't the same at all.
This is an asset backed token, so the gold that's backing that
asset is stored in a Swiss vault.
And unlike U.S. Treasuries, that gold earns no
yield. Right?
So XAUT is a far less lucrative product for Tether than USDT.
(10:23):
Yeah, there's demand for this product, right?
Because many crypto natives would would rather their spare
capital be sitting in the thing that tracks the gold price, not
the US dollar, right? So is Tether investing in mining
royalties as a means of backing their product then?
Tether gold I was. Trying to figure this out JD,
because they mentioned Tether Gold explicitly in that that
(10:44):
announcement. But here's a few other things
you need to know about Tether. That company, like private,
still still a private company. They have not paid many
dividends historically. So they reinvest.
They reinvest the profits. And I already told you like how
phenomenal the profits are in recent history.
And if you look at the they do release like a balance sheet as
a thirty 30th of of October, I could find one.
(11:06):
And on that balance sheet, what you can see sitting on there
over 5 billion in physical gold bars on the balance sheet.
That's that at the time 10 timesthe value of the the tether
gold, you know, gold tether on on on on issue.
So it's best I can tell Tether has been pouring their profits
(11:28):
that I get from their cash printer into gold.
Like a small country. Yeah, it's, it's right and and
enormous they are they're buyinga lot of gold even when it's not
needed to back their gold Tetherproduct.
These guys are gold bulls and Bitcoin bulls because on that
balance sheet, there's also over$5 billion in Bitcoin, not
altcoins, not Ethereum, not any crypto note, not NFTS.
(11:51):
This is it's Bitcoin and gold and U.S.
Treasuries like is there's, there's none of the other crap,
right? This, this is a hard money
crowd. Whatever you, whether you agree
with their definition of hard money or not, that's what's
like, that's the the view of thethe people behind Teller.
Fascinating mate. So what does it all mean?
There's a few things here like #1 if you just think of
(12:13):
Elemental Altus as a, as a royalty company, like if you're
willing to pay 48, if you're willing to buy 48% of the
company, you could ensure a bet they'd be willing to buy 100%.
Now, the way the initial deal isstructured here, it bypassed in
Canada's like annoying laws. So if, if, if they embarked on a
full change of control, like, itcould be a different story for
actually getting a deal done. But yeah, I dare say they'd
(12:36):
they'd want to wrap the whole thing up #2 Tether's business
model at its core is profiting off the devaluation of the
dollar. Like that 5% yield, thanks to
like that, that interest rate isthere thanks to inflation.
That's profit for for Tether. And paradoxically, even though
they're profiting from dollar devaluation, they're
(12:56):
phenomenally important in the context of the US financial
system because they've become one of the largest buyers of
U.S. Treasuries.
You know, like when people are depositing dollars at Tether,
what is Tether doing? They're buying U.S.
Treasuries to ensure that that that USD TS is is at least
backed. Now they're not.
And what are they doing? Their profits.
They're not. They're not putting them into
more treasuries. Their profits.
(13:17):
They're putting into Bitcoin, into gold and now into gold
royalties. This is yeah, like, like I said,
this is a really, a really hard money crowd and they've got more
weight than most central banks and they know that royalties are
like, I suppose the superior hard asset when it comes to
exposure to the, to the, you know, to gold equities.
You you much prefer the royalty company, you know, over the long
(13:40):
term as opposed to being exposedto the capital allocation
dilemmas of of of most of the miners over over the duration.
And if you just think of Tether,right, the available powder that
that entity has to deploy here is next level.
They if, if they're motivated enough to do this deal with
Elemental, you've got to ask what's next.
(14:01):
Like Elemental was a neat deal where they could get 48%
exposure in a single announcement or a single deal.
Like there's not too many royalty companies where you
could do that. Like, in fact, I can only think
of one other one where you couldget a meaningful stake in one
announcement. And that's like triple flag,
right? You've got Elliott owning 67% of
that company, a $6.6 billion company.
(14:23):
And it might seem crazy, but I genuinely could envisage a world
where Taylor bought Elliott steak and triple flag.
Like that's just the amount of profit that this, this company
kind of produces annually. It could, it could, it could
reasonably be be distributed to something crazy like that.
You know, I would, I'd love to see, I'd love to see like how
much of Franco Taylor already owns or how much of Wheaton or
(14:44):
Royal Gold or Cisco royalties that Taylor already owns.
Because I imagine they've got investments and stakes in these
royalty companies already if they're pretty familiar with the
asset class. Yeah, you have to think that
they've picked up stakes across a raft of them.
Anything else would have come tomind diving into this one.
I've seen like some some people talking about this deal and kind
(15:04):
of reflecting and thinking that maybe it's a prelude to a
potential launch of a tokenized royalty stream.
That's kind of interesting. And if you can acquire a decent
enough like portfolio of royalties, which Tether can
because they've got the cash to,to do that, that is a much
faster way to get a product to market than like the myriad of
(15:24):
sort of start-ups that are are trying to do a similar thing.
Like a lot of there are start-ups out there trying to
tokenize royalties and they kindof have to finance them into
existence sometimes or do some quirky thing.
And you've got to wait 20 years for hopefully that royalty to
now be producing to be worth something.
And you face a lot of liquidity constraints.
But Tether can just buy decent royalties and maybe build, yeah,
(15:45):
some some infrastructure or product around a tokenized role
with your stream. I think it's a bit to play out
there, but. To sling one more question on
you mate, can you envisage your world?
I'd imagine some money miners want to hear this question where
these players would finance someof the bigger gold mining
companies directly. I don't think so, yeah.
(16:08):
I don't like. I just don't like.
I think there's like a lot of expertise that comes with, with
writing royalties and I don't think like an industry outsider
could, could actually acquire like 100% stake in like a in one
of those companies and, and, andreplicate that, that discipline
and that skill and that knowledge you have to.
Money goes a long way to to solving those problems.
(16:29):
But who? Cares if you get the royalties
at like the world's best royalties, then you know, but.
When you when you've got the people running those companies
that aren't the ones that put those royalties in place anymore
and they don't have all the upside from from what the
earlier people at the companies did in doing those deals, then
perhaps as Wiggle Run to incentivize them, yeah, who
knows. Yeah, you probably, Yeah, that
(16:50):
is an an interesting point like I could see Ted to be.
Without a team of just like a list royalty riding.
Yeah. I could see, I could see where
we're like, yeah, Tethers cash was capital that could be tapped
into by, you know, a partially tethered owned royalty Co and
used to used to finance like I could see that yeah.
And Taylor was a company that was really on the fringes of
(17:11):
like acceptable, but has been like completely endorsed from a
credibility perspective in and afew.
Wobbles along the way, but yeah.Yeah.
Yeah. Oh, awesome, mate.
Before we jump into Coronado, I want to share a snippet from a
recent conversation we had with none other than Derek Heard
Sandwich Ground Sport boss. So this is a man who knows more
about ground support than almostanyone in the business.
(17:34):
Hear it from him now. What's the biggest misconception
about ground support? But it is that simple.
It's a consumable. That's the biggest thing, that
it's a simple, simple thing. I could just buy from anyone,
you know, and it's, you know, traded product at the end of the
day. What's the risk of thinking that
way? That's the the quality and
safety aspects. You know, it's it's a safety
(17:55):
product. Yes, we're consumable in nature.
We're a volume business and we do get put into the consumable
category, but we're a safety product and that's why that
quality assurance and the the after sales backup is so
critical and that's what we really focus on.
Thanks, Derek. Go Samic ground support.
(18:15):
All right, mate. What is going on with Coronado?
All right Coronado, there's a there's a few questions to try
and answer here Firstly, is New Hope going to come and try and
save the day? Is 7 that kind of elusive family
office of a Czech billionaire lurking in the background, who
mind you would be counting theirlucky stars they didn't buy
these massive stake some 12 months to 18 months ago.
(18:38):
You've also got distressed debt players out there swirling
around. And to make the story even more
fascinating, you've got a stock that's down 90%.
So this might be a bit better for a lot of equity holders.
But we are going to try and flesh out some potential Silver
Linings in this story as well and see if there is anything
left or in any case if there's any learnings from other people
(19:01):
who are keen on the coal space. I'm tremendously interested.
I mean, when you see volatility like that in a share price and
liquidity concerns, you've got me interested.
Why are you interested, Janie? I am interested for a bunch of
reasons mate, probably lining upwith why you're interested as
well, but it falls in that area of like a a potentially
interesting opportunity for someof the obvious reasons.
(19:23):
Massively depressed commodity price potential recapitalisation
event, a a equity where the market hasn't given it too much
hope of survival. You know, see the, the share
price for that one. And I thought regardless, given
the state of where coal markets are at, given the state of how
some of the other players are trading, it'd be worthwhile just
(19:44):
refreshing ourselves on on the space to to see what we can kind
of do here going forward. What is like, yeah, like, I
don't know if I've ever done a deep dive on Coronado, and I
probably should have, but like, what's the 101?
I think funnily enough, I'm in the same boat as you and it's
because of the, the problems nowfacing them.
They were just too much of A turn off to do the deep dive.
(20:04):
But the, the one-on-one is that Coronado is a predominantly met
coal producer operations in Australia and USA sort of 2/3
Aussie, 1/3 USA split by revenue.
Cara is the the asset we we talkabout here in Australia, 90% of
the revenue is is met coal, but that kind of comes on the back
(20:25):
of this deal. They signed with the Queensland
government, well it was related to the tenements and then signed
with the the Queensland government, which I only
mentioned because it becomes relevant to some of their
financing discussions now. But that that is the thermal
coal that gets sold to the Queensland Government to fire
the coal-fired power plants there.
So there's a strategic importance of supply.
(20:47):
There is because an agreement iscoming or is changing in 2027
and it gives them new material to market and they've just
signed an agreement to to sell it to the Queensland government
again. So that that is in a nutshell.
A couple of points on Coronado mate.
What's and what's going on with the the latest sheet?
So to, to capture it in like 1 line, you've got high cost
(21:08):
operations, you've got plummeting commodity price and
you've got debt and that equals a very troubled outlook and the
company's sell. The recipe first disaster in our
world yeah, exactly. Financial leverage operational
leverage. Yeah.
Back body prosper. Oh, but it's beautiful.
There's nothing going for you. It's.
Beautiful when it goes well, butit doesn't always go well.
So these guys have been actuallyinvesting heaps in their assets,
(21:30):
which is interesting given 2223 was a you know, a really rich
vein of profit years for the coal miners.
They've now been investing a lotof cash in their assets, but
they've remained indebted through throughout.
So they, you know, having had that combination of being
unprofitable and all that debt are are now coming unstuck
(21:52):
because coal prices have peeled off so much.
And if you just look at the lastquarter, the March quarter like
these guys report on a calendar year basis, but March quarter
saw cash drop US $110 million inquarter.
Now a good chunk of that was investing cash flows, but that
kind of tells you to an extent what you need to know.
Yeah, and the debt? So the debt is, as of last
(22:16):
reporting before these latest negotiations come into account,
about 200 million U.S. dollars in net debt.
Now. Yeah, it's likely a bit.
There's been changes given they're bringing cash in the
door, but it's given their loss making been expanding out the
other way as well. That's greater than their market
cap now, which in Aussie dollar terms is below 300 million
(22:38):
dollars. So the the key piece of debt
they've got $400 million bond, which is a tradable bond pays a
bit over 9%. Now that costs them on a yearly
basis about US $40 million. So just making that payment
alone is is a bit hard Yaki, given they're not making any
profit and the bond cents have traded off to $0.70 on the
(23:01):
dollar, which means they're yielding like 18%.
And I'm sure there'll be a bunchof people out there who aren't
so financially inclined and, anddon't care about how bonds trade
and all that stuff. So what it means in a nutshell
is that lenders or people that play in the, the bond market,
I'm not certain they're going toget back every dollar that has
been lent to the company. And given that debt comes before
(23:23):
equity in, in the stack, it's a,it's a pretty ominous warning or
sign for shareholders out there.And it's no surprise that you've
seen the stock right massively down as well as you know on the
back of seeing that the bonds trade down massively in the past
couple months. Yeah, man, $0.70 on the dollar
fee bonds, not a not a good sign, no.
(23:44):
No, it's not at all. So what can they do in this
situation so. They've got, they've got a
couple levers to pull and you know, I trust they are looking
at every single one of them. But firstly they're negotiating
with the the Queensland Government.
So this is their agreement with Stanwell coal-fired power
stations as I sort of mentioned.So who's behind Stanwell?
That's the that's the government.
That's the Queensland government.
So these guys have been selling a bit over 3,000,000 tons per
(24:05):
annum thermal coal. And firstly they've been paying
these massive rebates, which ties into the tenements, goes
back to the the asset, the history there.
And secondly, they've been selling that at essentially
massively discounted prices, butthat was going down to 2.2
million tons being forced to be sold to the government in 2027
(24:27):
onwards, which essentially meansthey are negotiating a, a
prepayment for those tons that they're going to produce from
those years onwards. So what they're saying to the
Queensland government is we'll continue to give you the amount
that we've been giving you today, but we need cash upfront,
we need it now. And you're incentivized because
you want us to be around to deliver the tons to you.
(24:50):
So that explains the US $150.00 agreement with the, the state
government there. It's a, it's a kind of split 75
of that is a temporary waiver onthis rebate, which is not
insignificant. That rebates cost them over $100
million in in a given year and then 75 is prepayment for coal
(25:10):
that they're going to deliver. So if you step back and try and
value the business, this is not good for the overall like NPV of
the the project or the sort of DCF for the business like your
your foregoing future profits toget cash in the door right now,
but you have to do it. They can solve a liquidity
issue. Then exactly.
Yeah, if it keeps you in the game, you've just got to do
(25:31):
these. Things and sometimes your share
price like falls off because themarket's pricing in a cap raise.
You can solve that with a prepayment instead.
Then you might get some short term repriv on that front which
you know might make an eventual cap raise.
Yeah, exactly. And cap raise and Speaking of
other negotiations that there are a few on the table.
So firstly, you've got this dealwith oak tree.
(25:51):
They came out with a great deal with oak tree binding, they
called it. Although both parties can still
back out the deal. So it's not completely binding I
mean. Oak trees.
These are distressed debt experts, right?
Yeah, yeah, they, they absolutely are.
The stock ripped 50% on the newsthat they'd signed this deal.
So it was an asset backed lending facility, 150 million
(26:14):
U.S. dollars to keep the lights on essentially that's on the
table now. Then you've got rumors that New
Hope, the thermal coal producer who plays in both NSW and
Queensland, is potentially goingto come in with refinancing or
to acquire Coronado. It's super interesting.
And I mean it gets more interesting for New Hope as
(26:36):
well. I think because they've been
held back to an extent by potential M and AA lot of people
thought they were going to take over Maliba, which they own 22
ish percent in. And you know, for for a number
of reasons, this has held them out because that was going to be
a rumoured billion dollar transaction.
Yeah, you compare it with this now.
And if they were to take over Coronado, yeah, they would be
(26:56):
getting 3X the amount of volume and they would be paying a much
smaller price tag. But a lot of asterisks is there.
Shooting the debt, Yeah, They'vealso got a.
Yeah. And that doesn't even take unit
costs into account and everything and the CapEx?
It might still have to be dark, yeah.
But New Hope have a much healthier balance sheet and
they're backed by Sol Pats as well.
So if we're going to dive in deeper into potential
(27:19):
acquisitions, we've got to talk about EMG.
These are the private equity. This is the private equity group
that listed Coronado in 2017 at a 3 1/2 billion dollar
valuation. They still own 51% of the
company. So no deal gets done without
their say. So super hard to get a read into
them. They're an American group, do a
(27:41):
lot in the oil kind of space as well.
Yeah. We don't know how much sort of
cash they have, how much they would want to tip in, but they
have final say off essentially. They they certainly wanted
wanted an exit like 18 months ago when that was supposedly a
done deal with 7, but never that, you know, that never
actually eventuated. Yeah, it it.
It would be tough not to to ponder that one every time you
(28:03):
wake up and you look at what Coronado is currently trading
at. But times have changed quite a
bit. And given where natural resource
PE has been in that, the sort ofstate they've been in lately,
it's hard to get a gauge on how much liquid cash these guys
would actually have, what they can actually do.
So we'll, we'll, we'll talk about a few other options.
(28:24):
You've also got 7 like you mentioned there.
They were rumored to be buying the debt of Coronado just
recently buying buying a Porsche.
On market, yeah. On market $40 million was the
the rumor there. Yeah.
Now we know they're interested. They're trying to buy a big
stake in the company not too long ago.
They have bought numerous assetsin in Australia in the past.
(28:47):
That's a that's a big question mark.
Like you, you need deep pockets to take on this operation in
Coronado because you are buying loss making mines.
So even if you can stump up the money to buy the company out,
you need to be able to stomach potential losses for a number of
years to come as CapEx is being spent.
(29:07):
Like CapEx has been pulled all the way down to just critical
stuff. Yeah, So they've got big
expansions, Buchanan and here here in Australia as well, going
underground at Cara. It's been winding down, but you
still need to spend a lot of money on the assets.
So you need to be pretty deep pocketed to do a deal here.
Well, if they're buying the, the, the listed bonds on market
(29:29):
at whatever $0.70, then like thebigger risk when you get a
distressed situation like this and you've got stressed that
guys like floating around is that you get primed and there's
some new debt that enters the cap structure, which is, you
know, seeing you secured and ranks high than you and yours
like you rank even lower than that because you bought the
listed bonds, which may be unsecured.
(29:51):
Are they unsecured or? Secured.
I believe they are secured. Well, yeah, regardless.
Like you could still theoretically get primed, but
maybe they just want like they want to sit at the table.
Maybe they're buying secure deckbecause they want to sit at the
table. Maybe they have interest in
Australian asset, so all the US ones but not both.
Like I'd be very curious what the ambitions of Seven Group
(30:14):
are. Yeah, You'd have to be doing
your homework and potentially like you say there, you could
buy it. If you do want to buy it, split
it out and try and sell. I mean, even in this
environment, you're not going toget a great price for the US
assets. But if it goes under like and
you've got secured debt, even ifyou do get primed, you've got a
pretty meaningful like seat at that table as opposed to it.
Things get messy. And that oak tree facility,
(30:34):
there is a refinancing of an, analready existing facility.
So they're in and around there. And these guys, yeah, they
breached covenants already and they didn't report that for a
number of months after it happened.
So there's a, there's a fair bitgoing on.
And then, you know, an equity raising is also potential on the
table. I mean, it's essentially A
(30:55):
recapitalization at this price. And then we know there's other
groups that like financing coal players, Farallon is the name
that comes to mind areas as well.
Given the the profitability again of the assets, I'm not
sure how much more they could actually stomach.
So it's it's a tough question toanswer, but potential that
they're floating around too. It doesn't.
(31:16):
It kind of all come down to can can the assets turn around or
not? Well, here's the thing going
back to the point that I made earlier mate on them investing
in in the assets so that they have been putting a lot of money
in. They are expanding the profile.
Overall output is going to be 3,000,000 tons higher.
As you said, Cara. This is a cross.
(31:37):
So they have been Buchanan is the is the expansion in the
States and Mammoth is the underground at Cara.
So unit cost across both operations should be coming down
that they will come down. It's just what shape Coronado is
in by that course those rebates they are coming off.
So you know that that agreement with Stanwell will happen and
(31:58):
the you know, come 2027 unit costs will be lower.
It just depends what state the company is in.
CapEx is coming down, although it's still pretty hefty.
It's going to be about 70 ish, $1,000,000 going forward and
you've got others, you know potential levers you could pull.
There is marketing rights they could sell again, kind of
(32:19):
selling a bit of your future upside for cash in the door
today. So there there's a few options
on the table and I mean we need to talk a bit about the coal
price, right, because there's not many players in the market
that are so unbelievably talked to the coal price right now like
this stock is so beaten up. If there were to be some sort of
(32:40):
incident or disruption, supply disruption or something like met
coal prices is very weak. Demand has been weak at the
moment for a number of factors. But if there was to be an uptick
in that, the thing would thing would RIP higher because the the
dynamic would completely change.Yeah.
Now you, you can't sit around hoping that'll happen, but it's
something you got to keep in mind.
(33:01):
Yeah. Whether we see a capital raise
as well is another potential catalyst.
If you're someone on the outsidelooking in, if you're, if you're
there right now, it's maybe not what you're you're hoping for,
but everything needs to kind of be on the table to to save the
business. Yeah, and you're also making an
equation or an estimate on the like the the state government's
(33:25):
like propensity to actually, yeah, provide more generosity as
things like could, could look worse more and more diet you
have you have the state government putting their hand
out more. It's kind of interesting that
they they had asked for royalty relief again and they were sort
of rejected on that front. But maybe if the thing the
situation gets even worse, the the state government changes
(33:47):
their tune a bit more on that one.
I wouldn't hold my breath because.
Well. Yeah, Carl, you need to see that
happen before you're turning thelights off.
You know, you need the line of sight on that.
So yeah, yeah, there's there's there's a bit to to Stew on
there, but there's certainly players interested in giving
(34:09):
cash and making sure this this operation, this company
survives. So yeah, we'll see if it's too
little too late or if a few parties can come together and
make something happen. You.
Can make and lose a lot of moneyby like yeah, doubling in these
sort of situations like just as easily have like a double as you
could lose all your money I'm taking.
Yeah. But I mean imagine there is the
(34:29):
recapitalization and you get a bit more clarity on on on unit
costs and all those sorts of things.
You could be in a interesting position if you've you've got a
three or four year time horizon looking forward because coal
prices at a low ebb talk like wementioned, but you need to kind
of get there first. Any other takeaways, JD?
(34:50):
Mate, there, there. There's a sort of couple, right?
The, the like way in which we'reseeing commodity cycles and
capital cycles play out. I find fascinating because we've
spoken heaps about it over the, the, the past couple years, but
I feel like we're actually seeing it in, in real time now.
It's, it's pretty exciting. Like it's unfortunate here in
Coronado situation, but if you look around the market at this
(35:11):
point in time, like Platinum's another one in the PGM space,
we've seen it like these things take years to sort of play out.
Coal was booming when we startedthe potty, right?
Like the guys were making money hand over fist.
And how the companies invest that money in the good times is
like an indicator of how they'regoing to perform in the long
term. If they are, you know, building
(35:33):
a solid cash ball and going to take advantage of the the weak
and lower sort of cost environment times is a super,
super, super important indicator.
And these guys didn't necessarily do the wrong thing.
They're like in they've investedin their assets, but they still
held debt. And maybe they did a little bit
too late if you're going to be cynical, but that that is
(35:54):
something that really kind of comes to mind here.
And yeah, I'm just thinking about that heap lately.
I've got one more for you actually as well.
These guys had their AGM just recently and it was a completely
virtual AGM. Don't like it, don't like it.
Also like. I remember looking at their
notice of meeting by the way andgiant board across yeah,
(36:16):
multiple jurisdictions with an absolutely bizarre peer comp for
the for the R.E.M. Benchmarking and unfathomable
amount of GNA going towards yeahthe yeah, the overheads
department to to the board whichcouldn't fathom for the size of
the company. Yeah, there's, there's a few
sort of question marks there. I think with with virtual Agms
(36:38):
like the preferences, it's got to be virtual and in person.
Yeah, it's just, yeah, it's got to be in this day and age and
like, yeah, you can't just silence shareholders like that.
But anyway, I think that's enough on on Coronado and a good
bit to to think about there for the punters out there.
Absolutely mate, we've got some partners to thank.
We do have a couple partners to thank mate.
(36:58):
A massive thank you to Mineral Mining Services, grounded
sandwich ground support, cage rule and cross boundary energy.
Now remember, I'm an idiot. JD is an idiot.
Thought any of this was anythingother than entertainment.
You're an idiot and you need to read out a disclaimer.
Over 5 billion in physical gold bars on the balance sheet,
Tether has been pouring their profits into gold.
Like a small country. Yeah, and enormous they are.
They're buying a lot of gold. These guys are gold bulls.
JD, you thought that Franco Nevada had the most beautiful
(00:22):
business model in the world. And it is.
It is up there, I assure you. I'm going to tell you why
There's an even better one than that and it's Tether.
Stay with me here. And they've just done a deal to
buy a mining royalties business.I'm going to talk all about it
today. Mate, we're also going to talk
about coal, one of the most fascinating names in the game at
the moment, Coronado. They're getting battered from
(00:44):
all ends. They need a saviour though, and
we're going to dive into whetherthey will find that.
Saviour talking about coal and crypto.
I don't know if our yeah, the people that that love Bunny mum
will be paying attention to thisjourney, but they're they're
riveting stories. I can't wait.
You know what else I can't wait for?
Before we talk about the latest and the greatest in the mining
world, we need to talk about a certain GC grounded
(01:04):
construction. I know you're a you're a keen
reader of the Financial Review AFR.
I am indeed. And you might have caught this.
I saw this headline just this week.
Lavish food and luxury FIFO workers just want a good night's
sleep. That's the finding of the most
comprehensive study of workers in mining camps, which
researchers hope will help resource giants keep staff.
(01:25):
Happy. Do you know what that sounds
like to me mate? That is more confirmation for
anyone out there that if you're going to build a mining camp,
you need grounded. That should be your first call.
Make 170 projects completed, $1800 delivered and work across
nearly 300 assets. Enormous.
Goes beyond that as well, mate. They've worked with FMG, they've
worked with Rio, they've worked with Goldfields, just to name a
(01:45):
couple of their great partners out there.
Look. Here's the thing, the FIN survey
is probably the best insight we've seen into what workers
actually value. And we know if workers are
happy, they're more productive, but what are those top points
that they care about, mate? These are the points that your
miners really care about. They care about noise
insulation, they care about roomsize.
They care about the ability to personalise their room, room
(02:08):
aesthetics as well as the overall camp design.
That just to me, it's like I know the solution, you've ratted
off the problem, but I already know the solution.
So but it's kind of it all makessense, right?
You kind of insulation. Yeah, well, you don't want to be
awake from the noise near the camp like you need sleep. 100%
mate if you want to keep the campers doing the hard yards out
there, the guys and girls working in the mine happy, just
(02:30):
give grounded construction a call mate.
I will indeed. I look forward to calling Paul
Natalie. OK, you probably didn't see this
coming because the world's largest stable coin issuer,
Tether, yes, the same Tether behind USDT has taken a
meaningful stake in a in a gold and copper mining royalty
company, elemental Altus royalties.
(02:51):
And I don't think it's a side bet.
I think this is a signal. Yeah, I I wanted to like,
underline and highlight what yousaid there.
Like this is so fascinating. It's it's so interesting.
So why don't you start us off byjust saying first who tether,
tether investments are and then secondly about elemental out as
the the royalty group? Yeah, well, Tether investments
(03:11):
like think of them as a assistant entity of of Tether.
The stable coin issue up. They've acquired this 34% stake
in Elemental Otis Royalties. That stake came by paying
122,000,000 Canadian dollars to Lamancha.
You remember Lamancha? JD had him on the show.
Mate had had, Yeah, we did. We had groom groom on the Greek.
A lot of time. To be on the show, yeah, but but
(03:32):
that's of course the the resource fund of the Egyptian
billionaire, the grip size. But Tether didn't stop with the
34% stake and now simultaneouslywith the deal, they got this
option to buy another 14% of Elemental from A1 for another
53,000,000 Canadian dollars, which if they exercise the
option that would leave Tether with a 48% stake in in Elemental
(03:54):
alters. And on Elementals side, they're
one of the smaller listed royalty companies out there with
just a a couple of producing royalties and and a lot of
development ones in their portfolio.
A couple in our backyard mate. Yeah, indeed, their, their like
portfolio is, is gold dominant and, and the flagship royalty
(04:14):
there is, is Karla Window. That's a 2% NSR over Capricorn's
color window. But they've also got this 0.5%
NSR over Lundin's Casarones. And yeah, but a very gold
dominant portfolio. OK, so so dive into what what
makes you so interested about this deal and what things could
look like going forward. This is Tether, like a lot of
people have probably heard of Tether and a lot of people are
(04:36):
suspicious of Tether and a lot of people, you know, like there
was a lot of a lot of a lot of kind of like negative thoughts
and views out there about, aboutTether.
But I just want to pause all of that for a moment.
And so I don't think many peopleare actually aware of just how
phenomenal the business model of, of Tether is.
It's utterly insane how good of a business this is.
(04:58):
And it's so simple. Tether popularized the tokenized
stable coin U.S. dollars is of course the the flagship product
there, which they wrap into USD T And it turns out there's a
huge amount of demand for cryptonative U.S. dollar, mainly
because people want to use that in the many online casinos that
are crypto exchanges and associated products of that
(05:20):
ecosystem. You give Tether $1.00, you
receive 1 USD T just Tether stable coin in return, right?
You can use that USD T in cryptomarkets, think DFI apps,
etcetera. Now Tether, what they do is they
keep your $1.00 instead of putting it in a vault.
They invested mostly in short term U.S.
(05:41):
Treasuries which are yielding like 5% plus per year.
Tether earns interest on your dollar JD.
They don't pay you any interest though.
So you hold a digital IOU which is a USDT not a deposit.
Tether keeps 100% of that yield,which is attractive at the
moment. They have issued over 150
(06:03):
billion USD T That is a staggering number to sort of
conceptualize. Now even if only 80% of that is
backed by treasuries, that's 120billion U.S. dollars earning 5%
annually. That's over 6 billion in annual
profit from the treasury interest alone, with a tiny team
(06:26):
to the House of like 125 staff and like effectively negligible
operating costs. Phenomenal.
There's not too much more to be to be set on it.
It's just it's incredible. It's it's good business if you
can get it. Crazy.
It's yeah. Like they print digital dollars,
they earn interest on real dollars, and they give holders
(06:49):
none of it. That's like why it's the most
kind of profitable company you've never heard of and never
seen audited. But you know, irrespective, you
kind of have to just respect theoperational efficiency of that
business model, which is experience like tremendous
tailwinds, but just tremendous like market dominance,
tremendous growth in all, in allaspects.
It's a truly phenomenal business.
And in the mining industry, we have our own truly glorious
(07:09):
business models being the royalty companies.
You only need a handful of of staff, right?
You collect a check every month from your royalties and it
scales so well. You never need a big team as
your revenue grows in theory, right?
So Franco Nevada being kind of the industry leader for for a
very long time and I always findit astonishing to learn the, the
profit of that business for, forso few employees.
(07:33):
Like take the 2024 numbers of Franco, their net income is
$552,000,000 and a head count of45 people.
That's $12.3 million in profit per employee at Franco Nevada.
Like there is not a mining company in the world that could,
could achieve that, but a royalty company can because of
the beautiful, the beautiful model that a royalty is.
(07:53):
It's a staggering number, and you would have a tremendously
hard time finding a business that comes kind of close to that
in any industry, except I happened to know one, JD.
Let. Me guess in 2024, get this
profit, an astonishing 13 billion U.S. dollars on an
employee headcount of like 125, right, That's 104 million profit
(08:15):
per employee that yeah, the operational efficiency is just,
yeah, unparalleled. That's eight times Franco Nevada
is profit per employee who I thought would be impossible to
be. So whatever your opinion of of
crypto is, Tether is just a truly tremendous business and
both Tether and royalty companies operate with lean
teams and high margin business models.
(08:36):
All right, pulling it back to the deal now.
I I really want to point out a couple of lines from the
announcement out of out of tether right now.
I'll read these quotes Out says.The acquisition was made as part
of Tether investments growing commitment, tangible assets and
precious metals as part of its broader vision to enhance the
transparency, utility and accessibility of digital assets
(08:57):
backed by real world value. This investment reflects our
long term confidence in the fundamentals of gold and its
critical role in financial markets.
Elementals royalty model provides diversified exposure to
gold production around the world, aligning strategically
with our vision or Tether gold and future commodity backed
digital asset infrastructure. It's a bit to take in there,
(09:18):
right? But to start with, I want to
hone in on that last sentence where Tether's CEO mentions
Tether Gold specifically. And you know that glorious
business model I described of Tethers as it related to USD T?
Well, Tether has another product, a much more nascent one
called XAUT or to the Gold and the concept is similar.
(09:40):
You know, it's this gold backed digital tokenized asset.
At the moment there's 150 billion USDT in circulation yet
to the gold or XAUT only has about 0.5% the the the size in
in circulation of 246,000 ouncesof gold you can think of that's
like U.S. Dollar terms like just less than
(10:01):
600 million at our current market value.
But there's a big difference with the business model.
There is like the economics aren't the same at all.
This is an asset backed token, so the gold that's backing that
asset is stored in a Swiss vault.
And unlike U.S. Treasuries, that gold earns no
yield. Right?
So XAUT is a far less lucrative product for Tether than USDT.
(10:23):
Yeah, there's demand for this product, right?
Because many crypto natives would would rather their spare
capital be sitting in the thing that tracks the gold price, not
the US dollar, right? So is Tether investing in mining
royalties as a means of backing their product then?
Tether gold I was. Trying to figure this out JD,
because they mentioned Tether Gold explicitly in that that
(10:44):
announcement. But here's a few other things
you need to know about Tether. That company, like private,
still still a private company. They have not paid many
dividends historically. So they reinvest.
They reinvest the profits. And I already told you like how
phenomenal the profits are in recent history.
And if you look at the they do release like a balance sheet as
a thirty 30th of of October, I could find one.
(11:06):
And on that balance sheet, what you can see sitting on there
over 5 billion in physical gold bars on the balance sheet.
That's that at the time 10 timesthe value of the the tether
gold, you know, gold tether on on on on issue.
So it's best I can tell Tether has been pouring their profits
(11:28):
that I get from their cash printer into gold.
Like a small country. Yeah, it's, it's right and and
enormous they are they're buyinga lot of gold even when it's not
needed to back their gold Tetherproduct.
These guys are gold bulls and Bitcoin bulls because on that
balance sheet, there's also over$5 billion in Bitcoin, not
altcoins, not Ethereum, not any crypto note, not NFTS.
(11:51):
This is it's Bitcoin and gold and U.S.
Treasuries like is there's, there's none of the other crap,
right? This, this is a hard money
crowd. Whatever you, whether you agree
with their definition of hard money or not, that's what's
like, that's the the view of thethe people behind Teller.
Fascinating mate. So what does it all mean?
There's a few things here like #1 if you just think of
(12:13):
Elemental Altus as a, as a royalty company, like if you're
willing to pay 48, if you're willing to buy 48% of the
company, you could ensure a bet they'd be willing to buy 100%.
Now, the way the initial deal isstructured here, it bypassed in
Canada's like annoying laws. So if, if, if they embarked on a
full change of control, like, itcould be a different story for
actually getting a deal done. But yeah, I dare say they'd
(12:36):
they'd want to wrap the whole thing up #2 Tether's business
model at its core is profiting off the devaluation of the
dollar. Like that 5% yield, thanks to
like that, that interest rate isthere thanks to inflation.
That's profit for for Tether. And paradoxically, even though
they're profiting from dollar devaluation, they're
(12:56):
phenomenally important in the context of the US financial
system because they've become one of the largest buyers of
U.S. Treasuries.
You know, like when people are depositing dollars at Tether,
what is Tether doing? They're buying U.S.
Treasuries to ensure that that that USD TS is is at least
backed. Now they're not.
And what are they doing? Their profits.
They're not. They're not putting them into
more treasuries. Their profits.
(13:17):
They're putting into Bitcoin, into gold and now into gold
royalties. This is yeah, like, like I said,
this is a really, a really hard money crowd and they've got more
weight than most central banks and they know that royalties are
like, I suppose the superior hard asset when it comes to
exposure to the, to the, you know, to gold equities.
You you much prefer the royalty company, you know, over the long
(13:40):
term as opposed to being exposedto the capital allocation
dilemmas of of of most of the miners over over the duration.
And if you just think of Tether,right, the available powder that
that entity has to deploy here is next level.
They if, if they're motivated enough to do this deal with
Elemental, you've got to ask what's next.
(14:01):
Like Elemental was a neat deal where they could get 48%
exposure in a single announcement or a single deal.
Like there's not too many royalty companies where you
could do that. Like, in fact, I can only think
of one other one where you couldget a meaningful stake in one
announcement. And that's like triple flag,
right? You've got Elliott owning 67% of
that company, a $6.6 billion company.
(14:23):
And it might seem crazy, but I genuinely could envisage a world
where Taylor bought Elliott steak and triple flag.
Like that's just the amount of profit that this, this company
kind of produces annually. It could, it could, it could
reasonably be be distributed to something crazy like that.
You know, I would, I'd love to see, I'd love to see like how
much of Franco Taylor already owns or how much of Wheaton or
(14:44):
Royal Gold or Cisco royalties that Taylor already owns.
Because I imagine they've got investments and stakes in these
royalty companies already if they're pretty familiar with the
asset class. Yeah, you have to think that
they've picked up stakes across a raft of them.
Anything else would have come tomind diving into this one.
I've seen like some some people talking about this deal and kind
(15:04):
of reflecting and thinking that maybe it's a prelude to a
potential launch of a tokenized royalty stream.
That's kind of interesting. And if you can acquire a decent
enough like portfolio of royalties, which Tether can
because they've got the cash to,to do that, that is a much
faster way to get a product to market than like the myriad of
(15:24):
sort of start-ups that are are trying to do a similar thing.
Like a lot of there are start-ups out there trying to
tokenize royalties and they kindof have to finance them into
existence sometimes or do some quirky thing.
And you've got to wait 20 years for hopefully that royalty to
now be producing to be worth something.
And you face a lot of liquidity constraints.
But Tether can just buy decent royalties and maybe build, yeah,
(15:45):
some some infrastructure or product around a tokenized role
with your stream. I think it's a bit to play out
there, but. To sling one more question on
you mate, can you envisage your world?
I'd imagine some money miners want to hear this question where
these players would finance someof the bigger gold mining
companies directly. I don't think so, yeah.
(16:08):
I don't like. I just don't like.
I think there's like a lot of expertise that comes with, with
writing royalties and I don't think like an industry outsider
could, could actually acquire like 100% stake in like a in one
of those companies and, and, andreplicate that, that discipline
and that skill and that knowledge you have to.
Money goes a long way to to solving those problems.
(16:29):
But who? Cares if you get the royalties
at like the world's best royalties, then you know, but.
When you when you've got the people running those companies
that aren't the ones that put those royalties in place anymore
and they don't have all the upside from from what the
earlier people at the companies did in doing those deals, then
perhaps as Wiggle Run to incentivize them, yeah, who
knows. Yeah, you probably, Yeah, that
(16:50):
is an an interesting point like I could see Ted to be.
Without a team of just like a list royalty riding.
Yeah. I could see, I could see where
we're like, yeah, Tethers cash was capital that could be tapped
into by, you know, a partially tethered owned royalty Co and
used to used to finance like I could see that yeah.
And Taylor was a company that was really on the fringes of
(17:11):
like acceptable, but has been like completely endorsed from a
credibility perspective in and afew.
Wobbles along the way, but yeah.Yeah.
Yeah. Oh, awesome, mate.
Before we jump into Coronado, I want to share a snippet from a
recent conversation we had with none other than Derek Heard
Sandwich Ground Sport boss. So this is a man who knows more
about ground support than almostanyone in the business.
(17:34):
Hear it from him now. What's the biggest misconception
about ground support? But it is that simple.
It's a consumable. That's the biggest thing, that
it's a simple, simple thing. I could just buy from anyone,
you know, and it's, you know, traded product at the end of the
day. What's the risk of thinking that
way? That's the the quality and
safety aspects. You know, it's it's a safety
(17:55):
product. Yes, we're consumable in nature.
We're a volume business and we do get put into the consumable
category, but we're a safety product and that's why that
quality assurance and the the after sales backup is so
critical and that's what we really focus on.
Thanks, Derek. Go Samic ground support.
(18:15):
All right, mate. What is going on with Coronado?
All right Coronado, there's a there's a few questions to try
and answer here Firstly, is New Hope going to come and try and
save the day? Is 7 that kind of elusive family
office of a Czech billionaire lurking in the background, who
mind you would be counting theirlucky stars they didn't buy
these massive stake some 12 months to 18 months ago.
(18:38):
You've also got distressed debt players out there swirling
around. And to make the story even more
fascinating, you've got a stock that's down 90%.
So this might be a bit better for a lot of equity holders.
But we are going to try and flesh out some potential Silver
Linings in this story as well and see if there is anything
left or in any case if there's any learnings from other people
(19:01):
who are keen on the coal space. I'm tremendously interested.
I mean, when you see volatility like that in a share price and
liquidity concerns, you've got me interested.
Why are you interested, Janie? I am interested for a bunch of
reasons mate, probably lining upwith why you're interested as
well, but it falls in that area of like a a potentially
interesting opportunity for someof the obvious reasons.
(19:23):
Massively depressed commodity price potential recapitalisation
event, a a equity where the market hasn't given it too much
hope of survival. You know, see the, the share
price for that one. And I thought regardless, given
the state of where coal markets are at, given the state of how
some of the other players are trading, it'd be worthwhile just
(19:44):
refreshing ourselves on on the space to to see what we can kind
of do here going forward. What is like, yeah, like, I
don't know if I've ever done a deep dive on Coronado, and I
probably should have, but like, what's the 101?
I think funnily enough, I'm in the same boat as you and it's
because of the, the problems nowfacing them.
They were just too much of A turn off to do the deep dive.
(20:04):
But the, the one-on-one is that Coronado is a predominantly met
coal producer operations in Australia and USA sort of 2/3
Aussie, 1/3 USA split by revenue.
Cara is the the asset we we talkabout here in Australia, 90% of
the revenue is is met coal, but that kind of comes on the back
(20:25):
of this deal. They signed with the Queensland
government, well it was related to the tenements and then signed
with the the Queensland government, which I only
mentioned because it becomes relevant to some of their
financing discussions now. But that that is the thermal
coal that gets sold to the Queensland Government to fire
the coal-fired power plants there.
So there's a strategic importance of supply.
(20:47):
There is because an agreement iscoming or is changing in 2027
and it gives them new material to market and they've just
signed an agreement to to sell it to the Queensland government
again. So that that is in a nutshell.
A couple of points on Coronado mate.
What's and what's going on with the the latest sheet?
So to, to capture it in like 1 line, you've got high cost
(21:08):
operations, you've got plummeting commodity price and
you've got debt and that equals a very troubled outlook and the
company's sell. The recipe first disaster in our
world yeah, exactly. Financial leverage operational
leverage. Yeah.
Back body prosper. Oh, but it's beautiful.
There's nothing going for you. It's.
Beautiful when it goes well, butit doesn't always go well.
So these guys have been actuallyinvesting heaps in their assets,
(21:30):
which is interesting given 2223 was a you know, a really rich
vein of profit years for the coal miners.
They've now been investing a lotof cash in their assets, but
they've remained indebted through throughout.
So they, you know, having had that combination of being
unprofitable and all that debt are are now coming unstuck
(21:52):
because coal prices have peeled off so much.
And if you just look at the lastquarter, the March quarter like
these guys report on a calendar year basis, but March quarter
saw cash drop US $110 million inquarter.
Now a good chunk of that was investing cash flows, but that
kind of tells you to an extent what you need to know.
Yeah, and the debt? So the debt is, as of last
(22:16):
reporting before these latest negotiations come into account,
about 200 million U.S. dollars in net debt.
Now. Yeah, it's likely a bit.
There's been changes given they're bringing cash in the
door, but it's given their loss making been expanding out the
other way as well. That's greater than their market
cap now, which in Aussie dollar terms is below 300 million
(22:38):
dollars. So the the key piece of debt
they've got $400 million bond, which is a tradable bond pays a
bit over 9%. Now that costs them on a yearly
basis about US $40 million. So just making that payment
alone is is a bit hard Yaki, given they're not making any
profit and the bond cents have traded off to $0.70 on the
(23:01):
dollar, which means they're yielding like 18%.
And I'm sure there'll be a bunchof people out there who aren't
so financially inclined and, anddon't care about how bonds trade
and all that stuff. So what it means in a nutshell
is that lenders or people that play in the, the bond market,
I'm not certain they're going toget back every dollar that has
been lent to the company. And given that debt comes before
(23:23):
equity in, in the stack, it's a,it's a pretty ominous warning or
sign for shareholders out there.And it's no surprise that you've
seen the stock right massively down as well as you know on the
back of seeing that the bonds trade down massively in the past
couple months. Yeah, man, $0.70 on the dollar
fee bonds, not a not a good sign, no.
(23:44):
No, it's not at all. So what can they do in this
situation so. They've got, they've got a
couple levers to pull and you know, I trust they are looking
at every single one of them. But firstly they're negotiating
with the the Queensland Government.
So this is their agreement with Stanwell coal-fired power
stations as I sort of mentioned.So who's behind Stanwell?
That's the that's the government.
That's the Queensland government.
So these guys have been selling a bit over 3,000,000 tons per
(24:05):
annum thermal coal. And firstly they've been paying
these massive rebates, which ties into the tenements, goes
back to the the asset, the history there.
And secondly, they've been selling that at essentially
massively discounted prices, butthat was going down to 2.2
million tons being forced to be sold to the government in 2027
(24:27):
onwards, which essentially meansthey are negotiating a, a
prepayment for those tons that they're going to produce from
those years onwards. So what they're saying to the
Queensland government is we'll continue to give you the amount
that we've been giving you today, but we need cash upfront,
we need it now. And you're incentivized because
you want us to be around to deliver the tons to you.
(24:50):
So that explains the US $150.00 agreement with the, the state
government there. It's a, it's a kind of split 75
of that is a temporary waiver onthis rebate, which is not
insignificant. That rebates cost them over $100
million in in a given year and then 75 is prepayment for coal
(25:10):
that they're going to deliver. So if you step back and try and
value the business, this is not good for the overall like NPV of
the the project or the sort of DCF for the business like your
your foregoing future profits toget cash in the door right now,
but you have to do it. They can solve a liquidity
issue. Then exactly.
Yeah, if it keeps you in the game, you've just got to do
(25:31):
these. Things and sometimes your share
price like falls off because themarket's pricing in a cap raise.
You can solve that with a prepayment instead.
Then you might get some short term repriv on that front which
you know might make an eventual cap raise.
Yeah, exactly. And cap raise and Speaking of
other negotiations that there are a few on the table.
So firstly, you've got this dealwith oak tree.
(25:51):
They came out with a great deal with oak tree binding, they
called it. Although both parties can still
back out the deal. So it's not completely binding I
mean. Oak trees.
These are distressed debt experts, right?
Yeah, yeah, they, they absolutely are.
The stock ripped 50% on the newsthat they'd signed this deal.
So it was an asset backed lending facility, 150 million
(26:14):
U.S. dollars to keep the lights on essentially that's on the
table now. Then you've got rumors that New
Hope, the thermal coal producer who plays in both NSW and
Queensland, is potentially goingto come in with refinancing or
to acquire Coronado. It's super interesting.
And I mean it gets more interesting for New Hope as
(26:36):
well. I think because they've been
held back to an extent by potential M and AA lot of people
thought they were going to take over Maliba, which they own 22
ish percent in. And you know, for for a number
of reasons, this has held them out because that was going to be
a rumoured billion dollar transaction.
Yeah, you compare it with this now.
And if they were to take over Coronado, yeah, they would be
(26:56):
getting 3X the amount of volume and they would be paying a much
smaller price tag. But a lot of asterisks is there.
Shooting the debt, Yeah, They'vealso got a.
Yeah. And that doesn't even take unit
costs into account and everything and the CapEx?
It might still have to be dark, yeah.
But New Hope have a much healthier balance sheet and
they're backed by Sol Pats as well.
So if we're going to dive in deeper into potential
(27:19):
acquisitions, we've got to talk about EMG.
These are the private equity. This is the private equity group
that listed Coronado in 2017 at a 3 1/2 billion dollar
valuation. They still own 51% of the
company. So no deal gets done without
their say. So super hard to get a read into
them. They're an American group, do a
(27:41):
lot in the oil kind of space as well.
Yeah. We don't know how much sort of
cash they have, how much they would want to tip in, but they
have final say off essentially. They they certainly wanted
wanted an exit like 18 months ago when that was supposedly a
done deal with 7, but never that, you know, that never
actually eventuated. Yeah, it it.
It would be tough not to to ponder that one every time you
(28:03):
wake up and you look at what Coronado is currently trading
at. But times have changed quite a
bit. And given where natural resource
PE has been in that, the sort ofstate they've been in lately,
it's hard to get a gauge on how much liquid cash these guys
would actually have, what they can actually do.
So we'll, we'll, we'll talk about a few other options.
(28:24):
You've also got 7 like you mentioned there.
They were rumored to be buying the debt of Coronado just
recently buying buying a Porsche.
On market, yeah. On market $40 million was the
the rumor there. Yeah.
Now we know they're interested. They're trying to buy a big
stake in the company not too long ago.
They have bought numerous assetsin in Australia in the past.
(28:47):
That's a that's a big question mark.
Like you, you need deep pockets to take on this operation in
Coronado because you are buying loss making mines.
So even if you can stump up the money to buy the company out,
you need to be able to stomach potential losses for a number of
years to come as CapEx is being spent.
(29:07):
Like CapEx has been pulled all the way down to just critical
stuff. Yeah, So they've got big
expansions, Buchanan and here here in Australia as well, going
underground at Cara. It's been winding down, but you
still need to spend a lot of money on the assets.
So you need to be pretty deep pocketed to do a deal here.
Well, if they're buying the, the, the listed bonds on market
(29:29):
at whatever $0.70, then like thebigger risk when you get a
distressed situation like this and you've got stressed that
guys like floating around is that you get primed and there's
some new debt that enters the cap structure, which is, you
know, seeing you secured and ranks high than you and yours
like you rank even lower than that because you bought the
listed bonds, which may be unsecured.
(29:51):
Are they unsecured or? Secured.
I believe they are secured. Well, yeah, regardless.
Like you could still theoretically get primed, but
maybe they just want like they want to sit at the table.
Maybe they're buying secure deckbecause they want to sit at the
table. Maybe they have interest in
Australian asset, so all the US ones but not both.
Like I'd be very curious what the ambitions of Seven Group
(30:14):
are. Yeah, You'd have to be doing
your homework and potentially like you say there, you could
buy it. If you do want to buy it, split
it out and try and sell. I mean, even in this
environment, you're not going toget a great price for the US
assets. But if it goes under like and
you've got secured debt, even ifyou do get primed, you've got a
pretty meaningful like seat at that table as opposed to it.
Things get messy. And that oak tree facility,
(30:34):
there is a refinancing of an, analready existing facility.
So they're in and around there. And these guys, yeah, they
breached covenants already and they didn't report that for a
number of months after it happened.
So there's a, there's a fair bitgoing on.
And then, you know, an equity raising is also potential on the
table. I mean, it's essentially A
(30:55):
recapitalization at this price. And then we know there's other
groups that like financing coal players, Farallon is the name
that comes to mind areas as well.
Given the the profitability again of the assets, I'm not
sure how much more they could actually stomach.
So it's it's a tough question toanswer, but potential that
they're floating around too. It doesn't.
(31:16):
It kind of all come down to can can the assets turn around or
not? Well, here's the thing going
back to the point that I made earlier mate on them investing
in in the assets so that they have been putting a lot of money
in. They are expanding the profile.
Overall output is going to be 3,000,000 tons higher.
As you said, Cara. This is a cross.
(31:37):
So they have been Buchanan is the is the expansion in the
States and Mammoth is the underground at Cara.
So unit cost across both operations should be coming down
that they will come down. It's just what shape Coronado is
in by that course those rebates they are coming off.
So you know that that agreement with Stanwell will happen and
(31:58):
the you know, come 2027 unit costs will be lower.
It just depends what state the company is in.
CapEx is coming down, although it's still pretty hefty.
It's going to be about 70 ish, $1,000,000 going forward and
you've got others, you know potential levers you could pull.
There is marketing rights they could sell again, kind of
(32:19):
selling a bit of your future upside for cash in the door
today. So there there's a few options
on the table and I mean we need to talk a bit about the coal
price, right, because there's not many players in the market
that are so unbelievably talked to the coal price right now like
this stock is so beaten up. If there were to be some sort of
(32:40):
incident or disruption, supply disruption or something like met
coal prices is very weak. Demand has been weak at the
moment for a number of factors. But if there was to be an uptick
in that, the thing would thing would RIP higher because the the
dynamic would completely change.Yeah.
Now you, you can't sit around hoping that'll happen, but it's
something you got to keep in mind.
(33:01):
Yeah. Whether we see a capital raise
as well is another potential catalyst.
If you're someone on the outsidelooking in, if you're, if you're
there right now, it's maybe not what you're you're hoping for,
but everything needs to kind of be on the table to to save the
business. Yeah, and you're also making an
equation or an estimate on the like the the state government's
(33:25):
like propensity to actually, yeah, provide more generosity as
things like could, could look worse more and more diet you
have you have the state government putting their hand
out more. It's kind of interesting that
they they had asked for royalty relief again and they were sort
of rejected on that front. But maybe if the thing the
situation gets even worse, the the state government changes
(33:47):
their tune a bit more on that one.
I wouldn't hold my breath because.
Well. Yeah, Carl, you need to see that
happen before you're turning thelights off.
You know, you need the line of sight on that.
So yeah, yeah, there's there's there's a bit to to Stew on
there, but there's certainly players interested in giving
(34:09):
cash and making sure this this operation, this company
survives. So yeah, we'll see if it's too
little too late or if a few parties can come together and
make something happen. You.
Can make and lose a lot of moneyby like yeah, doubling in these
sort of situations like just as easily have like a double as you
could lose all your money I'm taking.
Yeah. But I mean imagine there is the
(34:29):
recapitalization and you get a bit more clarity on on on unit
costs and all those sorts of things.
You could be in a interesting position if you've you've got a
three or four year time horizon looking forward because coal
prices at a low ebb talk like wementioned, but you need to kind
of get there first. Any other takeaways, JD?
(34:50):
Mate, there, there. There's a sort of couple, right?
The, the like way in which we'reseeing commodity cycles and
capital cycles play out. I find fascinating because we've
spoken heaps about it over the, the, the past couple years, but
I feel like we're actually seeing it in, in real time now.
It's, it's pretty exciting. Like it's unfortunate here in
Coronado situation, but if you look around the market at this
(35:11):
point in time, like Platinum's another one in the PGM space,
we've seen it like these things take years to sort of play out.
Coal was booming when we startedthe potty, right?
Like the guys were making money hand over fist.
And how the companies invest that money in the good times is
like an indicator of how they'regoing to perform in the long
term. If they are, you know, building
(35:33):
a solid cash ball and going to take advantage of the the weak
and lower sort of cost environment times is a super,
super, super important indicator.
And these guys didn't necessarily do the wrong thing.
They're like in they've investedin their assets, but they still
held debt. And maybe they did a little bit
too late if you're going to be cynical, but that that is
(35:54):
something that really kind of comes to mind here.
And yeah, I'm just thinking about that heap lately.
I've got one more for you actually as well.
These guys had their AGM just recently and it was a completely
virtual AGM. Don't like it, don't like it.
Also like. I remember looking at their
notice of meeting by the way andgiant board across yeah,
(36:16):
multiple jurisdictions with an absolutely bizarre peer comp for
the for the R.E.M. Benchmarking and unfathomable
amount of GNA going towards yeahthe yeah, the overheads
department to to the board whichcouldn't fathom for the size of
the company. Yeah, there's, there's a few
sort of question marks there. I think with with virtual Agms
(36:38):
like the preferences, it's got to be virtual and in person.
Yeah, it's just, yeah, it's got to be in this day and age and
like, yeah, you can't just silence shareholders like that.
But anyway, I think that's enough on on Coronado and a good
bit to to think about there for the punters out there.
Absolutely mate, we've got some partners to thank.
We do have a couple partners to thank mate.
(36:58):
A massive thank you to Mineral Mining Services, grounded
sandwich ground support, cage rule and cross boundary energy.
Now remember, I'm an idiot. JD is an idiot.
Thought any of this was anythingother than entertainment.
You're an idiot and you need to read out a disclaimer.
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