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Boom days

Czech coal miner goes public to fund Polish expansion

By Victor Velek
Staff Writer, The Prague Post
April 23rd, 2008 issue

ISIFA
Much of NWR's value derives from OKD's black coal operations in north Moravia, such as the ČSM Mine near Poland.
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Northern seams

NWR says that it will use the proceeds from its IPO to fund two coal mines in southern Poland, close to OKD's base of operations:
NWR wants to revive the dormant Morcinek coal mine, in cooperation with Jastrzębska Spółka Węglowa, a mining group owned by the Polish government
Construction of an entirely new mine at Dębieńsko, for which NWR is seeking a license, could almost double the company's reserves, with some 190 million tons of coal expected at the site

Proponents of renewable energy may want to look the other way.
The Dutch company New World Resources (NWR), which derives most of its value from its ownership of the Czech Republic’s largest black coal miner, OKD, is set to launch the largest initial public offering (IPO) in Czech history.
After postponing the IPO last year due to volatility on the global financial markets, the company has decided the situation is finally ripe for going public. NWR will float 25 percent to 33 percent of its shares on stock exchanges in London, Prague and Warsaw, it said April 10.
The proceeds from the IPO will help fund NWR’s expansion into Poland, said Zdeněk Bakala, one of the financiers who controls NWR through a web of Cyprus-registered investment firms.
NWR declined to comment on how much it expects to receive in the offering. “Typically, the mining sector is valued somewhere between six and 18 times the company’s EBITDA,” said spokesman Joe Cook.
Last year, the firm’s EBITDA — or earnings before interest, taxes, depreciation and amortization — increased 24 percent to 351 million euros ($562 million/8.7 billion Kč). This would place the value of one-third of its stock between 17.4 billion and 52.2 billion Kč.  
“By floating one-third of its shares, NWR could gain up to 35 billion Kč,” said Petr Novák, analyst with the securities dealer Atlantik FT.
Marek Hatlapatka of the brokerage Cyrrus gave a similar estimate.
“Based on available sources, the company is worth about 100 billion Kč at the most, so it could raise a maximum of some 30 billion Kč in the offering,” he said.
The country’s largest-ever IPO should be completed by the end of June. However, it is still unclear how many shares will eventually end up on the Prague market.
“The London Stock Exchange will be the primary market,” Cook said. “London is a global trading center for commodities and mining and extraction stocks,” he said, adding that it is still too early to talk about how the remaining shares will be allocated between Prague and Warsaw.
For the Prague bourse, NWR’s arrival is a very important event, and more so since it is a European player, said Petr Koblic, director of the Prague Stock Exchange.
“I have no doubt the listing will garner interest among investors,” he said. “We believe NWR’s successful listing will spur more companies to follow suit.”
Last year, Prague saw two IPOs. However, the first 2007 debut, that of the used-car dealer AAA Auto, turned into a fiasco. Shortly after the listing, AAA Auto’s share price plummeted. Today, the shares are traded at approximately 20 Kč apiece, down more than 60 percent.
In the case of NWR’s listing, such a dim scenario is highly unlikely, according to Dušan Jalový, analyst at UniCredit Bank.
“NWR is a completely different firm,” he said. Sharp fluctuations of its shares are improbable: “Coal is a tangible commodity and coal reserves can be reckoned.”
“I expect great demand for NWR shares as the company represents a sector booming thanks to soaring commodity prices,” said Novák, adding, “NWR can capitalize on the growing steel industry in north Moravia and on newly built automotive plants in the Czech Republic that increase the demand for steel.”
NWR’s mines are conveniently located in the vicinity of its major customers, large steel producers such as ArcelorMittal and Moravia Steel.
Poland at stake
Bakala and his partners run a company consisting of five coal mines in the northeast of the Czech Republic with reserves of 229 million tons, enough for 17 years of production. In 2007, NWR sold 13.1 million tons of coal and produced 1.3 million tons of coke, while posting a net profit of 196 million euros, up 94 percent compared with 2006.
The company has two irons in the fire in Poland that the IPO will fund.
In a joint project with Jastrzębska Spółka Węglowa, a Polish state-owned mining group, NWR plans to resume operations in Morcinek, a Polish coal field nearby one of its Czech mines.      
The other Polish venture is a solo project eyeing the Dębieńsko mining district in southern Poland. “The project is in early stages of development. In March, we applied for a mining license,” Cook said.
The initiatives — especially the latter, which would see construction of a new mine — will require hundreds of millions of euros, according to NWR. On the other hand, the new mine would almost double NWR’s reserves, as there are estimated coal seams of 190 million tons at Dębieńsko.
The economically liberal and pro-reform Polish government has repeatedly declared its intention to privatize the coal industry. Bakala, who recently met with the Polish economy minister, Waldemar Pawlak, said he was assured about the sincerity of this commitment.
“If NWR failed in securing the license for coal mining at Dębieńsko, it would have a negative impact on the shares,” Novák said. “However, I personally think the company is completely certain about getting the permit.”
 

Victor Velek can be reached at vvelek@praguepost.com


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