Conuma Coal Resources Limited

The stable outlook reflects our expectation that Conuma will generate strong FOCF with adjusted debt-to-EBITDA below 2x over the next 12 months. Our price assumptions over the next two years, which are close to historical average levels, underpin our estimates. However, we also take into account the company's high sensitivity to metals price volatility and potential for discretionary spending that could materially affect our estimates. We could lower the rating if, over the next 12 months, we expect adjusted debt-to-EBITDA to approach 5x or EBITDA margins to deteriorate below 25%. This could result from a combination of debt-financed acquisitions, operational disruptions, or benchmark low-volatile hard coking coal (HCC) prices declining by about 25% relative to our expectations in 2020. A

...Robust metallurgical coal prices should support strong credit measures.Metallurgical (met) coal prices have remained relatively strong, with prices currently at about US$210 per metric ton (/mt). S&P Global Ratings assumes prices will gradually decline from these levels, but expects Conuma Coal Resources Ltd. to continue to generate strong credit measures. S&P Global Ratings estimates the company's adjusted debt-to-EBITDA to be below 2x over the next two years, with continuing positive free cash flow. However, met coal prices have historically been highly volatile and a 25% decline in price, all else being equal, could increase leverage to more than 4x in 2020. Ratings upside is constrained by the company's financial sponsor ownership. We view AMCI Group, which owns 77% of Conuma, as a financial sponsor. Recent dividend payments to AMCI have been modest and funded from free operating cash flow (FOCF). Also, the company benefits from AMCI's multi-decade relationships with the world's largest...

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