Blackrock more than doubles its stake in Atlantic Coal

Atlantic Coal (AIM:ATC) received heavyweight backing today for its strategy as investment giant Blackrock reversed its stance on the AIM-listed digger with assets in Pennsylvania.

It was announced this morning that Blackrock will buy 75 million new shares in the company at a price of 0.4p, raising its stake from 3.47 per cent to 7.24 per cent. 

In August last year Blackrock announced it had reduced its holding to below 4 per cent.

The cash call will bring in around £300,000, and Blackrock will receive a warrant for every share it buys exercisable a 0.65p for two years.

Managing Director Steve Best said, "We are delighted that Blackrock has more than doubled its investment in Atlantic to 7.24 per cent and welcome its further investment and participation in the development of Atlantic and the advancement of our operations.  

“We believe we are entering a new phase in the development of the company, something that our new investors have recognised."

Atlantic owns the Stockton anthracite coal mine in Pennsylvania. And after a rather stop-start year it expects production to be around 100,000 clean tons this year, rising to 200,000 in 2011. 

Atlantic’s efforts have been helped by the purchase of a Liebherr R9250 19.6-yard bucket hydraulic excavator.

“(The excavator) is good news for the company as it has enabled them to increase the raw coal mined each quarter this year, a trend we anticipate will continue into the fourth quarter,” said Fox-Davies analyst Peter Rose in a recent research note. 

“Currently the mine is operating on two shifts a day, five days a week taking advantage of strong demand for coal.” 

The market for anthracite in Pennsylvania, meanwhile, has tightened considerably following the closure of a neighbouring mine, which has actually left Atlantic struggling to meet demand.

“Normally stocks are built up in summer and run down in winter. This situation is expected to continue for at least 18 months, and this is placing upward pressure on anthracite prices,” Rose explained.

“To underline this, two of the three best months for raw coal production were July and September, the next best month being June. 

“Production was only down in the August month due to a bearing failure on the screen, which necessitated the plant being shut down.”

The Fox-Davies analyst predicts Atlantic’s turnover this year will be US$11.8 million, rising to US$21 million in 2011, delivering EBITDA of US$10.7 million.

Creating a profitable cash generative business has always been only phase-one for managing director Best, who originally set out to be a mine consolidator in Pennsylvania.

And this is still the aim, although the Atlantic boss is guarded on just how he will fulfil this strategy with no obvious source of cash to fund these deals. 

Yet he seems upbeat and confident of his ability to make things happen.

“I’ve always said that Atlantic coal has got to be a consolidation play,” Best told Proactive Investors recently.  

“What I like about Pennsylvania is there are more sites and opportunities than we need fulfil our ambitions. 

“You could easily produce one million tonnes and have no problems selling it.

“The worst case scenario is we will produce 170,000 tonnes of clean coal from Stockton (next year) where we are already committed to selling to existing customers. 

“That will throw out a decent amount of money. If our bigger picture idea comes off it will change the whole perspective of the company.

“Plan B is we acquire perhaps one site or two on our own.”