According to a press release from Consol Energy (NYSE:CNX) on June 30 certain funds managed by Greenlight Capital have agreed to purchase 5,000,000 shares of the newly issued CNX Coal Resources LP (NYSE: CNXC) at the IPO price of $15.00 per share in a private placement. The IPO was completed in July with CNX selling a 21.1% stake of CNXC to the public and an additional 21.1% stake to Greenlight Capital in the private placement. Consol Energy continues to own 53.4% of the company and 100% of the General Partner which has a 2% interest.
What is CNX Coal Resources LP? It is a growth-oriented master limited partnership, sponsored by Consol Energy. CNX Coal Resources owns a 20% undivided interest in Consol Energy's Pennsylvania thermal coal mining complex (Bailey, Enlow Fork and Harvey mines). They have been granted the right of first offer to acquire the remaining 80% undivided interest in the complex if they choose. The complex has generated about 80% of Consol Energy's coal sales in 2015. The complex consists of three underground mines and related infrastructure that produce high-BTU bituminous thermal coal that is sold primarily to electricity generators in the eastern United States.
Why does Einhorn like CNX Coal Resources? Despite the fact that coal prices are at very low levels CNX Coal Resources plans to distribute a 51.25 cents per unit per quarter dividend ($2.05/year) which equates to current dividend yield of over 17% using the closing price of $12.02 on Monday. If coal prices increase, the dividend and stock price could generate strong returns for investors. Mason Hawkins (Trades, Portfolio) of Southeastern Asset Management (Longleaf Partner Funds) has mentioned that Consol Energy "is uniquely positioned to navigate these prices with low cost reserves." Consol Energy believes that CNX Coal Resources has significant advantages over peers due to its "strategic geographic location of the complex, high quality reserve base, logistical advantages and access rights to Consol Energy’s Baltimore terminal." One of the logistical advantages, according to Consol Energy, is a transportation cost advantage compared to Illinois Basin competitors and further states that CNX Coal Resources will benefit from being a low-cost, highly productive operation. Compared to other coal companies it has a much lower debt-to-market cap with only $200 million of debt versus a market cap near $267 million.
Interestingly, David Einhorn (Trades, Portfolio) at Greenlight Capital, Mason Hawkins (Trades, Portfolio) of Southeastern Asset Management (Longleaf Partner Funds) and Brian Rogers (Trades, Portfolio) (portfolio manager of the T. Rowe Price Equity Income Fund) all own shares of Consol Energy, but only Einhorn decided to take a large stake in the IPO of CNX Coal Resources. With the recent selloff in the stock investors can now get in at a lower price than Einhorn. As of the close of business on Monday CNX Coal Resources' stock price was $12.02, almost 20% lower than the $15 per share Greenlight Capital paid.
Also check out:
