's move to divestsubstantially all of its remaining coal assets in a deal with Revelation Energy LLC has been called an "attractiveexit" by FBR & Co. in an April 7 note.
The deal,which includes all of the company's remaining coal mining assets, mineral leases,real estate and mining reclamation costs, will cost SunCoke roughly $10.3 millionto Revelation Energy to take on ownership and associated costs.
FBR CapitalMarkets & Co. analyst Lucas Pipes praised the deal in a note released a dayafter the deal was announced, stating that he expects "the company's benefitsfrom this transaction to be a long-term positive, simplifying SXC's asset mix andallowing management's attention to return to the company's core operations."
Pipesadded that SunCoke management has estimated that the deal will be cash-flow neutralby the end of 2017 with avoided mine closure and reclamation costs, lower SG&Acosts through 2020 and other reductions in mine-related liabilities.
For Revelation,the deal marks the latest in a string of acquisitions from distressed coal producers.The private Central Appalachian producer boughtthree Kentucky steam coal complexes at the end of 2014 from James River Coal Co. as part of that company's Chapter 11restructuring. A year ago, it followed up with three mines from AlphaNatural Resources Inc. as the company moved through bankruptcy reorganization.
Accordingto the FBR release on the deal, Revelation has also entered into a five-year coalsupply agreement with SunCoke to deliver about 300,000 tons of coal to its JewellCoke operations at "a favorable delivered cost as compared to alternative coalsources."
Ultimately,SunCoke will be left with some remaining liabilities, including its legacy blacklung and workers' compensation liabilities, though other properties could soon betransferred to Revelation for an additional payment.
Despitethose remaining liabilities, the deal was sufficient for FBR to reiterate its outperformrating for SunCoke, Pipes said.
"Webelieve the market fundamentally misunderstands SXC's unique position within thedomestic steel industry," he wrote. "While the market is clearly assumingdeclining earnings power from the domestic coke assets, we believe that SXC's cokeassets are advantaged due to being the most modern, most efficient, and most environmentallycompliant source of coke to the North American blast furnace steel industry."