Coronado Global Resources Inc. (CODQL)

Executive Summary / Key Takeaways

• A Binary Investment Outcome: Coronado Global Resources faces a stark dichotomy—genuine operational improvements (production up 18% year-over-year, unit costs down 12%) are colliding with severe financial distress, creating a high-risk, potentially high-reward scenario where survival depends on closing the Stanwell transaction by November 2025.

• Operational Turnover Is Real, But Mispriced: The Mammoth and Buchanan expansion projects have reached 60-70% of run-rate, delivering 3.2 million tonnes of annualized production growth and driving mining costs to $89.70 per tonne—well below guidance—yet these gains are being completely overshadowed by met coal prices that have collapsed by $43 per tonne, erasing $520 million in revenue.

• Stanwell Deal: Necessary But Constraining: The proposed $265 million Stanwell facility provides critical near-term liquidity (adding $115 million net after ABL repayment) and up to $250 million in prepayment mechanisms, but it subordinates shareholder returns, imposes restrictive covenants, and creates a path dependency that makes Coronado's fate inseparable from its largest customer.

• Going Concern Warning Is The Defining Risk: Management's explicit statement that "substantial doubt exists" regarding the company's ability to continue as a going concern within one year is not boilerplate—it reflects genuine risk of covenant breach by December 31, 2025, if the Stanwell deal fails or coal markets deteriorate further, making this a liquidity story first and an operational story second.

• Key Catalysts To Watch: The investment thesis hinges on three variables: (1) successful financial close of the Stanwell transaction by late November 2025, (2) coal price recovery above $180 per tonne to restore cash generation, and (3) maintaining covenant compliance through Q1 2026 as expansion projects reach full capacity.

Setting the Scene: A Met Coal Producer Caught Between Execution and Liquidity

Coronado Global Resources, founded in 2011 and headquartered in Brisbane, Australia, operates as a global producer and exporter of metallurgical coal through two distinct geographic segments: the Curragh mine complex in Queensland, Australia, and the Buchanan and Logan mines in the U.S. Central Appalachia region. The company makes money by selling high-quality met coal to steel producers in Asia, North America, and Europe, with a secondary thermal coal business that provides baseload revenue through a long-term supply agreement with Australian utility Stanwell Corporation.

The current investment story is not about gradual improvement or steady execution—it is about whether Coronado can survive long enough to harvest the benefits of $230 million in expansion capital it has deployed. The company stands at an inflection point where operational metrics are improving across every meaningful dimension, yet financial metrics are deteriorating with equal force. This divergence explains why the stock trades at $0.20, reflecting a market that sees the going concern warning as a more important signal than production growth.

The metallurgical coal industry structure is brutally cyclical, with prices driven by steel demand, supply disruptions, and Chinese import policy. In 2025, the market has remained "subdued for a prolonged period," with no major supply disruptions and smooth logistics favoring buyers over sellers. This environment punishes high-cost producers while rewarding those with low unit costs and strong balance sheets. Unfortunately, Coronado's recent cost improvements have been overwhelmed by price declines, placing it in the vulnerable middle ground: operationally improving but financially constrained.

Technology, Products, and Strategic Differentiation: The Mammoth and Buchanan Gambit

Coronado's strategic differentiation lies in its dual-hemisphere production base and a deliberate pivot toward underground mining to offset the cost inflation plaguing open-cut operations. The Mammoth underground expansion in Australia and the Buchanan shaft debottlenecking in the U.S. represent more than capacity additions—they are fundamental attempts to restructure the cost curve and de-risk operations from weather and geologic variability.

The Mammoth project exemplifies this strategy. By adding three continuous miner panels and targeting 2 million tonnes per annum at full run-rate, Mammoth provides incremental, lower-cost tonnage that dilutes the rising strip ratios at Curragh's open-cut operations. More importantly, it builds underground mining skill in Australia, leveraging U.S. expertise to create a more stable production profile that is less vulnerable to Queensland's wet seasons. The engineering modifications to bolter configurations have successfully achieved required bolt rates, and management indicates a potential fourth panel could be added in late 2026 or early 2027, suggesting the system has upside beyond initial targets.

In the U.S., the Buchanan expansion addresses a critical bottleneck: two longwalls operating through a single shaft to surface. By repurposing an old vent shaft, Coronado has effectively doubled its hoisting capacity, enabling the dual longwalls to exceed 7 million tonnes per annum. This engineering fix transforms Buchanan from a constrained asset into a fully utilized cash generator, with the second longwall providing operational redundancy that proved valuable when a fall of ground impacted the North mine conveyor system.

The strategic shift to dragline systems at Curragh further demonstrates management's focus on cost structure. By pivoting from truck-and-shovel to dozer-push and cast-blast methods , Coronado is employing "the cheapest form of moving waste" while achieving proximity detection capabilities that set new industry safety standards. This matters because it shows management is pulling operational levers that competitors cannot easily replicate—dragline systems require specific geologic conditions and technical expertise that create a sustainable cost advantage.

Financial Performance & Segment Dynamics: When Good Operations Meet Bad Prices

Coronado's financial results for the nine months ended September 30, 2025, tell a story of operational victory and market defeat. Consolidated saleable production reached 11.7 million tonnes, up 0.3 million tonnes year-over-year, driven by higher equipment utilization and the Mammoth ramp-up. Yet sales volumes fell 0.7 million tonnes to 11.1 million tonnes due to rail constraints, port delays, and the deferral of five vessels into October 2025. This production-sales mismatch created a $30 million working capital drag that exacerbated liquidity concerns.

The revenue collapse is stark: coal revenues fell $520.6 million to $1.38 billion, driven by both lower volumes and a $43.20 per tonne decline in realized met coal prices. The average realized price of $148.60 per tonne in Q3 2025 reflects a market that is "not paying for premium quality met coal," compressing margins across the industry. For Coronado, this price decline overwhelmed the $200.3 million in mining cost savings achieved through contractor reductions, currency benefits, and the idling of Logan's surface mine.

Segment performance reveals the geographic divergence. Australian operations generated $833.4 million in revenue (down 33.9%) but produced positive Adjusted EBITDA of $122.9 million for the nine months—a dramatic improvement from the prior year's $16.4 million. U.S. operations delivered $565.8 million in revenue (down 18.0%) with Adjusted EBITDA of $50.5 million (down 59.7%), reflecting the Buchanan ramp-up costs and lower yields from temporary surface mine idling.

The critical financial metric is unit cost: mining costs per tonne sold fell to $97.60, down $13.40 year-over-year, with September's cost reaching $80.10 per tonne. This improvement demonstrates that expansion projects are delivering the promised cost dilution. However, with met coal prices at $148.60, the margin cushion has compressed dangerously thin, leaving little room for error on volumes or costs.

Outlook, Management Guidance, and Execution Risk

Management's guidance for Q4 2025 and 2026 reflects confidence in the operational trajectory but acknowledges the fragility of the financial position. The company expects "material volume increases again in Q4" as Mammoth and Buchanan progress toward steady-state, with both projects currently at 60-70% of expected run-rate. This implies an annualized incremental tonnage of approximately 3 million tonnes per annum should materialize in 2026, potentially lowering unit costs further and improving cash generation—if prices cooperate.

Cash capital expenditure is expected to be at the bottom end of the $230 million guidance for 2025, implying only $20 million in Q4 spend as major projects complete. This capex tailwind will support liquidity, but management notes that working capital will require reinvestment as inventory sells down and receivables normalize. The CFO explicitly states this will be funded from the new ABL facility, making the Stanwell transaction closure a prerequisite for operational continuity.

On pricing, management offers cautious optimism. They expect Indian post-monsoon restocking to lift demand, while CFR China prices holding a premium to seaborne benchmarks suggests import demand remains resilient. Additionally, "continued rationalization of high-cost supply" in Australia should tighten the market as marginal producers exit. However, this outlook is tempered by the reality that "the market remained subdued" with "no major supply disruptions" and "shipping and logistics functioning smoothly," conditions that favor buyers and limit price momentum.

The Stanwell transaction, announced October 28, 2025, is the fulcrum of the investment case. The deal includes a $265 million financing facility to replace the existing $150 million ABL, waiving of remaining rebate payments under the Amended Coal Supply Agreement (ACSA), extension of the New Coal Supply Agreement (NCSA) from 2037 to 2043, and a prepayment mechanism triggered when Coronado's liquidity falls below $250 million. The CFO estimates this could add "up to a further $250 million in cash flow over the course of FY '26 at current market prices," though this depends on Stanwell's nominated tonnages.

The prepayment structure is complex but critical: when liquidity is under $200 million, Stanwell provides 100% of the price discount as prepayment; between $200-250 million, it provides 50%; above $250 million, no prepayment is required. The accumulated prepayment bears interest at 7.5% per annum, capped at 1.2 times principal, and is settled through coal delivery when liquidity exceeds $300 million. This structure makes Stanwell both lender and customer, creating alignment but also subordinating other stakeholders.

Risks and Asymmetries: When The Story Can Break

The going concern warning is not hypothetical—it is the central risk that could render equity worthless within twelve months. Management concluded that "substantial doubt exists" due to continued subdued met coal markets, low realized prices, potential inability to fund short-term working capital, and the risk of negative operating cash flows into 2026. This doubt stems from the very real possibility of covenant non-compliance by December 31, 2025, if the Stanwell transaction fails to close or coal markets deteriorate further.

Credit rating downgrades by S&P (B- to CCC in June) and Moody's (MCO) (Caa1 to Caa2 in July) triggered review events under the ABL facility. While the lender confirmed no changes to terms or availability in July, the downgrades reflect the market's assessment of default probability. A further two-notch downgrade would trigger an Event of Default, potentially cross-defaulting the 9.25% Senior Secured Notes due 2029 and accelerating repayment obligations the company cannot meet.

The Queensland Financial Provisioning Scheme presents a material, non-obvious risk. The indicative risk allocation decision changed from "Moderate" to "High" for the Curragh mine complex, requiring a surety of $242.7 million in bank guarantees, insurance bonds, or cash collateral. If the final Annual Review Allocation confirms this "High" rating, Coronado must post collateral it does not have, creating a $242.7 million liquidity drain that would supersede all other concerns. Management is making submissions, but there can be "no assurances" of a favorable outcome.

The Stanwell transaction itself contains asymmetric risks. While it provides immediate liquidity, it subordinates shareholder returns through restrictions: any distribution requires maintaining $300 million minimum liquidity and using an equal or greater amount to reduce Stanwell prepayments. If a change of control occurs without Stanwell consent, the company must immediately repay the waived rebate amount. This makes the company "unacquirable" on conventional terms and limits strategic options.

Competitive Context and Positioning: The Cost Curve Determines Survival

Coronado's competitive position is defined by its place on the global met coal cost curve relative to four key peers: Arch Resources (ARCH), Warrior Met Coal (HCC), Alpha Metallurgical Resources (AMR), and Peabody Energy (BTU). In this comparison, Coronado's operational improvements are real but insufficient to offset structural disadvantages.

Arch Resources, with its Powder River Basin thermal coal diversification and Appalachian met coal operations, generates 66% contribution margins and trades at 1.99 times sales with a net debt-to-EBITDA ratio below 1.0x. Warrior Met Coal, a pure-play met coal producer like Coronado, achieves 19.95% gross margins and 6.32% operating margins with net debt of only 0.11x equity, demonstrating that focused met coal production can be profitable at current prices. Alpha Metallurgical Resources, operating exclusively in Central Appalachia, maintains 10.75% gross margins despite negative operating margins, with zero net debt providing balance sheet flexibility. Peabody Energy, with its Australian met coal assets, trades at 0.85 times sales with 13.85% gross margins and manageable leverage.

Coronado's financial metrics reveal its competitive gap: 8.09% gross margin, -14.92% operating margin, and debt-to-equity of 0.81x. While unit costs have improved to $97.60 per tonne, this remains above the cash costs of HCC and AMR, which industry reports place in the $80-90 per tonne range. The company's geographic diversification—spanning Australian and U.S. operations—provides supply chain resilience that pure-play U.S. producers lack, but this advantage is negated by higher financial leverage and the going concern overhang.

The dragline system innovation and Mammoth underground expansion could narrow this gap by 2026, potentially placing Coronado in the second quartile of the cost curve. However, competitors are not standing still: Warrior Met Coal's Blue Creek expansion and Arch's Leer South development are similarly targeting low-cost tons. The difference is that these competitors have balance sheet capacity to weather a prolonged downturn, while Coronado must achieve price recovery to survive.

Valuation Context: A Option on Survival, Not a Cash Flow Story

At $0.20 per share, Coronado's $349 million market capitalization and $822 million enterprise value reflect a market pricing the equity as a distressed option rather than a going concern. Traditional valuation metrics are largely meaningless: the negative 17.45% profit margin and -34.12% return on equity render P/E and ROE comparisons moot. The 0.43 price-to-book ratio suggests the market values assets at less than half their carrying value, reflecting expected impairments if operations cease.

The metrics that matter are those that signal survival probability. The 1.35 current ratio and 0.72 quick ratio indicate tight near-term liquidity, but the $328 million net debt position and $499.8 million in interest-bearing liabilities create a tightrope. With TTM operating cash flow of $74 million and negative free cash flow of -$174 million, the company is burning cash despite operational improvements.

The 3.42% dividend yield is a red herring—management has made clear that distributions are subordinated to Stanwell prepayments and require $300 million minimum liquidity, making dividend sustainability illusory.

Peer multiples provide context for a potential recovery scenario. Warrior Met Coal trades at 3.58 times sales and 22.98 times EBITDA, while Arch Resources trades at 1.99 times sales. If Coronado could achieve its 2026 target of 14-15 million tonnes at a $130 per tonne margin, it would generate $1.8-2.0 billion in revenue and potentially $200-250 million in EBITDA. Applying a conservative 3.0x EV/EBITDA multiple to the projected $200-250 million EBITDA would yield an enterprise value of $600-750 million. With $499.8 million in interest-bearing liabilities, this implies an equity value of $100-250 million. This range is below the current $349 million market capitalization, suggesting the market is either pricing in a higher multiple, a more optimistic EBITDA, or that the current valuation already reflects a significant recovery. This math explains why the equity trades as an option: potential upside exists if the market assigns a higher multiple or if EBITDA exceeds projections, but downside to zero remains in a liquidation scenario.

The Stanwell transaction's terms further constrain valuation. The $265 million facility at 7.5% interest, combined with the 9.25% senior notes, implies a weighted average cost of debt exceeding 8.5%. In a normalized met coal price environment of $180-200 per tonne, this is serviceable. At current prices of $148.60, it consumes all available cash flow. The valuation therefore depends entirely on coal price recovery before covenant breaches or liquidity exhaustion occur.

Conclusion: A Story That Hinges on Timing and Price

Coronado Global Resources presents a binary investment outcome where operational excellence may not be enough to overcome financial fragility. The company's achievement—cutting unit costs by 12% while ramping production 18% during a market downturn—demonstrates management's operational credibility. The Mammoth and Buchanan expansions are not vanity projects but strategic necessities that restructure the cost curve and de-risk operations. However, these improvements are being drowned by a $43 per tonne price decline that has erased $520 million in revenue and pushed the company to the brink of covenant default.

The Stanwell transaction is both necessary and constraining. It provides the $115 million in incremental liquidity required to fund working capital and avoid December 2025 covenant breach, but it subordinates shareholders, restricts strategic options, and creates a path dependency on a single customer. The investment thesis therefore hinges on three variables: (1) successful financial close by late November 2025, (2) met coal price recovery above $180 per tonne by Q2 2026, and (3) achievement of full run-rate production from expansion projects without cost overruns.

If these conditions materialize, Coronado's improved cost structure and increased volumes could generate $200-250 million in EBITDA, supporting an equity value potentially higher than current levels if the market assigns a more favorable multiple. If they do not, the going concern warning will prove prescient, and the equity will be wiped out through restructuring. The market's $0.20 valuation reflects this uncertainty, pricing the stock as a distressed option rather than a going concern. For investors, this is not a story of gradual recovery but of survival against a ticking clock—where operational success means nothing without financial stabilization, and where the reward for being right is high, but the probability of being wrong is higher.