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Natural Resource Partners LP Message Board

  • jrad52 jrad52 Jun 9, 2014 9:44 AM Flag

    Foresight IPO today/tonight?

    I posted a fairly long write-up but it seems to have disappeared and I didn't keep a copy. Instead of re-writing it, here's the gist: Mr Cline's company, Foresight Energy this AM filed what looks like its final amendment to its registration statement. They have upped the amount to be raised; it looks like the yield will be around 6.5% to start, and it looks like the deal might price today or tonight. Incredible in this market that it might actually success in the IPO.

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    • why such a low yield?
      Is it investible at the IPO price, in your opinion?
      I haven't studied it but expected a higher yield.

      • 1 Reply to lizahuang54321
      • Hello, I haven't heard from you in a while. Hope things are going well.

        I have no access to IPOs, except the ones that no one wants, so E*Trade gets an allotment. And those are the ones I don't want to buy. So I have no idea about the pricing.

        The yield certainly does look low for coal. At the midpoint, the yield would be 125 basis points higher than ARLP, but ARLP has a track record. Foresight has 2 things going for it that it is trying to sell - 1. It has the lowest cost of production I have ever seen or heard of. Its total cash costs are something in the neighborhood of $ 20/ton. ARLP, for comparison, is in the low $ 30 range per ton. Foresight's costs are so low apparently because its mines are mostly longwall, which are incredibly productive. and 2. Foresight is projecting huge production increases over the next 2 or 3 years, with similar increases in distributions.

        The downside is that Foresight doesn't have many contracts with domestic utilities, so it is heavily reliant on exports, which only make sense because the cost of production is so low. Apparently, utilities tend to buy coal at the coal mine, so the utility bears the cost of transportation. But in the export market, the miner bears the cost of transportation to New Orleans, and the costs are high.

        Mr Cline (the controlling owner of Foresight) has tried to buy into coal contracts without success. He actually offered to build a new coal-fired electricity production plant in Illinois for a local utility if they would buy his coal (I forget the details, but I'm sure he wanted to get paid for the power plant as well).

        I was thinking a yield closer to 9% would be attractive, but I was way off, it seems.

    • Does that mean that the Cline shares will be priced at $21.5?

      • 1 Reply to ayscuew
      • Sorry, you lost me. I assume you're talking about Foresight - the expected price range is $ 19 - $ 21 per unit. No one knows what they will actually be sold at; presumably the investment banks got indications of interest at that price. And Mr Cline isn't selling any units - Foresight itself is selling the units.

        But that answer is too cute, and this is one of the downsides of investing in Foresight. Foresight intends to use the proceeds of the IPO to pay down $ 210 MM of debt and then to distribute all of the remaining proceeds to its owns and a member of management. So while Mr Cline isn't selling any units directly, he's getting a chuck of the proceeds. Mr Cline always looks out for Mr Cline, as NRP investors well know - if you remember when he sold NRP all the Gatling reserves that NRP eventually had to write off as worthless.

        And if you're talking about Mr Cline's selling price for his NRP units? $ 21.50 per unit? That's a pretty good joke.

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