MG Capital Management Ltd., which owns 5.8% of Contura Energy’s outstanding common stock, issued a letter to the company’s board of directors calling for an accelerated exit from the thermal coal business. MG Capital said in recent months, it became clear that Contura could not fully reverse its yearslong tailspin until it accelerates its intended exit from the thermal coal business. It added that the company needs to “refresh” half of its six-member board.
“We are very concerned that Contura, which only two years ago had a market capitalization of more than $1 billion and a stock price of more than $75, continuously trades at a staggering discount to its intrinsic value,” MG Capital wrote. “As the country’s largest producer of coking [coal], Contura is part of the lifeblood of our economy and has a critical role to play with respect to infrastructure and national security.
“Notably, during the last cyclical high in 2011, Alpha Natural Resources, Inc. (Contura’s predecessor company) reached more than $12 billion in enterprise value and generated annual EBITDA in excess of $1 billion. In stark contrast, Contura’s estimated enterprise value is currently below $550 million.”
MG Capital called out three board members, John Lushefski, Daniel Geiger and Albert Ferrara Jr., saying they lacked the expertise and skills to support a turnaround in today’s new energy economy. It pointed to their stock buy-back and compensation as examples of poor allocators of capital, especially considering the impact of COVID-19.
MG Capital said they support Contura CEO David Stetson and the other management team members that assumed leadership roles in 2019. “We fully support new management’s decision to begin exiting the environmentally destructive thermal coal business and look forward to Contura quickly having little-to-no exposure to this segment of the market,” it said. “We are also impressed by management’s continued focus on containing costs and targeting debt reduction, which can eventually enable the company to resume its buyback program in a thoughtful manner.”
Contura responded saying, “Although we would have preferred that MG Capital engage with Contura privately, we have reviewed and considered the MG Capital letter.” The company said the last year has been one of the most challenging years for U.S. coal producers due to a variety of factors, including weak global coal demand, low coal prices and, of course, the COVID-19 pandemic.
Explaining that it has been working toward a thermal exit, the company said it is trying to sell the Cumberland mine, which would constitute a major element of the company’s planned exit from the thermal coal sector. It attempted to divest its Powder River Basin thermal coal properties through a sale to Blackjewel LLC in December 2017, which ultimately failed, but they were able to transfer the Wyoming assets to Eagle Specialty Materials.
Contura said its executive management team believes each of its directors have provided value to the company and its stockholders, and that executive management has the complete support of the board, with respect to the company’s focus on strategic initiatives, such as its transition to a pure-play metallurgical coal provider, its focus on safe and productive operations, and its pursuit of aggressive cost control.