The rough coal market is claiming another victim: Canadian junior Cline Mining Corp.
With the price for metallurgical coal sinking, miners both big and small are struggling. Earlier this fall Walter Energy Inc. incurred a billion-dollar write down, which came less than two years after it shelled out $3.3-billion to buy Western Coal Corp.
Now Cline Mining is defaulting on a debt payment, failing to pay the $2.5-million (U.S.) it owes this month. The company currently has $50-million of debt outstanding that pays 10 per cent interest annually, and investors include Marret Asset Management, which is handling a response to the default for all bondholders.
Sadly, the news isn't particularly surprising for Cline. In July the company suspended operations at its flagship New Elk coal mine in Colorado, citing a weak market, and the company has since struggled to find any new orders despite putting a focus on obtaining a long-term sales contract. With just $5.6-million in cash as of October 15, the clock was ticking.
Although analysts differed on when they thought the company would run out of cash, the consensus was that the company needed an injection of some sort. Cliff Hale-Sanders at Cormark Securities thought Cline needed $40-million to restart operations.
For now, the future is uncertain. Cline's president Ken Bates, former vice president of development for Denison Mines Ltd., could not be reached for comment.
However, should the market recover, Cormark thinks there's some good value in Cline. "In normal market conditions and with a smoother start-up, we believe the company would have been able to secure attractive terms on a sales contract. That said, in the current market with near-term oversupply of higher quality coals and significant concerns from buyers to hold inventory, Cline will likely have difficulty securing a firm off-take agreement especially given that no assurance of delivery can be made at this time as the mine is idle and capital is tight," Mr. Hale-Sanders noted in late October.
Tim Kiladze