Monsters of Rock: Banks don't want to finance coal but Bowen finds a way

Bowen Coal bypasses traditional banks to secure $190 million in funding to advance revival of Burton mine in Central Queensland
Shares fall more than 40% after announcement of financing arrangement, which includes a $40 million convertible note issue
Funding will bankroll plans to expand to 5Mtpa met coal production profile by 2024

Over the past few years traditional banks have become increasingly nervous about financing coal developments.

Along with long approval times and what were until relatively recently pretty poor market conditions for coal miners, investor and activist pressure on western banks has only intensified in recent years to restrict lending to fossil fuel producers.

But the market for coal has turned, with metallurgical and thermal coal fetching in the region of US$400/t at the moment following Russia’s invasion of Ukraine.

With that in mind, companies have been able to pay off old debt and access new options of funding to bankroll new developments and expansions.

That is easier done if you’re already pulling in sales, but pre-revenue coal miner Bowen Coal (ASX:BCB) looks to have got the job done to finance the redevelopment of its 5Mtpa Burton project.

In the case of Bowen, a $322 million miner chaired by former Stanmore Coal (ASX:SMR) boss Nick Jorss, ASX 200 coal miner New Hope Corporation (ASX:NHC) and mine finance specialist Taurus have come in to provide $190 million to back the redevelopment.

The package will include a US$55 million debt facility agreement with Taurus for rebuilding Burton’s infrastructure, a $70m secured bonding facility with New Hope (which sold the Burton and Lenton projects to Bowen last year) to fund mine rehabilitation bonds and $40m in unsecured convertible notes for working capital with the Crocodile Capital 1 Global Focus Fund and the Crocodile Capital Offshore Fund.

Bowen shares drop hard on funding news, new royalty regime

Bowen’s Jorss said despite rising demand for metallurgical coal the funding process had been long and complex.

“This has been an extremely complex transaction, some three years in the making, and I would like to personally acknowledge the fantastic efforts of the team at Bowen, our advisors, along with the goodwill of our incoming funding providers,” he said.

“Despite growing demand for steel for infrastructure and increasingly for the renewable transition, financing metallurgical coal projects is a market that has been abandoned by traditional lenders and significant barriers were overcome by the team in completing this transaction.

“With the opening of our operations this year and in current conditions, we expect to gain access to strong cash flows in a buoyant coking coal market which will help support further growth.”

It comes just after the start of mining at Bowen’s Bluff PCI mine, and includes an MoU with New Hope “to investigate further growth options in the sector”.

News of the financing deal, which includes a small royalty on production to Taurus on revenue from the Bluff (1%) mine, Broadmeadow East and Burton complex (0.25%) and a 32.5c a share conversion price on Crocodile’s convertible notes, sent shares in Bowen tumbling on its return to trade today.

BCB stock was off more than 40% to 20c at 4pm AEST, a long way of its 2022 high of 39c on June 8.

It also came on the same day as the Queensland Government moved to cash in on record coal prices, issuing new royalty rates as part of its budget that will kick in which coal exports are paying more than $175, $225 and $300 a tonne of 20%, 30% and 40%, respectively.

The budget measure, which will add layers on top of current top royalty rate of 15% of revenue at $150/t and above, is designed to raise $1.2 billion.

The measure was promptly criticised by the Queensland Resources Council.

““Regional resources communities have every right to ask this Government why their jobs and the economic prosperity of their towns should be put on the line for the sake of a short-term budget fix,” CEO Ian Macfarlane said.

“The Queensland resources sector already pays the highest royalty taxes in Australia, double that of NSW, and will now pay the highest rates in the world.

“Under the existing arrangements, as our commodity prices go up, so too do the royalties we pay into the state budget, which means every Queenslander benefits from our prosperity.

“That’s why this year, royalty taxes paid by the coal industry is an all-time record and four times last year’s payments.”

Bowen Coal (ASX:BCB) share price today:

Accelerating development

The mine in Central Queensland includes its own wash plant which will be used to process coal from Burton and surrounding mines like Broadmeadow East.

It was last in production in 2016.

With financial close and drawdown on the funding expected by the end of the month, two 440t excavators have already been mobilised to Broadmeadow East to begin mining.

Once it’s in full swing the Burton coal handling plant will have a processing capacity of up to 5Mt a year in a centralised location to wash coal from nearby coking coal projects like Broadmeadow.

“We believe that significant latent value exists in the attractive strip ratio coal at Burton / Lenton as well as the 5Mtpa wash plant, haul road, camp, train load out, and other infrastructure which unlock considerable synergies with our nearby projects,” Jorss said.

“Completing the acquisition of these Burton assets cements our recent step up from junior explorer and underpins our goal of completing our transition into a significant supplier of coking coal to the steel industry worldwide for many years to come.”