With energy markets at or near record highs we take a closer look at one of the stocks under our coverage, TerraCom Resources
(ASX:TER).
It has been an incredibly busy six months for the company as it has enjoyed an unprecedented thermal coal market – a confluence of underinvestment in traditional energy supply as well as the unfortunate events in Ukraine.
TerraCom’s Blair Athol thermal coal mine in Queensland is currently driving the company’s cash flow and profitability to such an extent that it has paid down an over 140 million Euroclear bond debt in less than 6 months, leaving the company nearly debt free.
Further to the paydown of the bond, the company announced on 10 June that OCP Asia, the holder of a US$20 million convertible note, had decided to convert the note to approximately 39.9 million ordinary shares. The conversion of that note to ordinary shares will result in approximately AU$27 million in additional cash flow that will not be required to service the note.
The outlook for future coal shipments looks incredibly positive with demand firmly outstripping supply. TerraCom had already secured a US$60 million prepayment for coal delivered into a single North Asian client before announcing today that it has reached an offtake agreement for the delivery of up to 1.25 million tonnes to a long-term Japanese trading partner over 13 months – with pricing linked to the globalCOAL Newcastle Index. Announcements like this underscore the global long-term concerns over thermal coal supply.
This strong forward sales performance underwrites what the company has been signalling with regard to the resumption of dividends. In a 10 June company update, management indicated the possibility of a 10 cents dividend, which would represent an excess of 13 per cent on the current share price.
Shares are trading 5.5 per cent higher at $0.77.
