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Coking Plant Sale Optimism Sends NWR Yields to Two-Month Low

Aug. 23 (Bloomberg) -- New World Resources Plc’s bond yields fell to an almost two-month low as the Czech coking-coal producer said it expects to sell a unit this year to raise cash.

Yields on NWR’s euro-denominated notes due in January 2021 have slid 242 basis points, or 2.42 percentage points, since the announcement yesterday to 26.72 percent today by 10:35 a.m. in Prague, the lowest since June 26, data compiled by Bloomberg shows. Investors holding the notes have lost 60 percent since the securities started trading on Jan. 18, compared with an 10 percent loss on an index of debt from emerging-market metals and mining companies compiled by JPMorgan Chase & Co.

NWR is battling a drop in coal prices amid shrinking demand from steelmakers, which use coking coal in smelters, as well as an oversupply of the fuel used to produce electricity. The company said yesterday it is in talks with potential buyers for its OKK coke plant in Ostrava, Czech Republic, and expects “substantial” income from the sale in 2013.

“Negotiations on the OKK sale and its expected completion by the end of 2013 could support the company’s liquidity, along with the cost savings,” Bohumil Trampota, an analyst at J&T Banka AS in Prague, wrote in e-mailed comments yesterday.

Amsterdam-registered NWR published a record net loss of 315.4 million euros ($421 million) for the second quarter yesterday, triggered by a 307 million-euro asset writedown. This missed a median estimate of 13 analysts polled by Bloomberg for a 65.3 million-euro loss.

Debt Negotiations

The company won’t be able to meet the terms of two of its loans and will negotiate with the banks to change the conditions or replace the facilities, which total about 170 million euros, it said in the statement. Earlier this year the coal producer avoided a potential breach of its debt covenants by getting lenders to agree waivers and amendments.

The yield on NWR’s 275 million euros of 2021 notes peaked at 39.29 percent on July 18, compared with a low of 7.82 percent on Jan. 18, data compiled by Bloomberg show.

NWR shares rose 4.5 percent today to 22.3 koruna, paring this year’s slump to 77 percent. A secondary listing in London climbed 3.9 percent to 73.75 pence.

JPMorgan cut its price estimate for NWR’s U.K.-traded shares to 38 pence from 40 pence yesterday, citing worsened thermal-coal price forecasts. The bank kept an underweight recommendation as the mining company’s “funding gap remains unsolved,” London-based analyst Benjamin Defay wrote in an e-mailed note.

‘Reasonable Expectation’

Coking coal has advanced 9.1 percent this month to $144 a metric ton, according to benchmark spot prices in China compiled by Bloomberg. It rebounded from this year’s low of $129 on July 16 amid signs of economic recovery in the U.S. and the euro area and as China takes steps to support growth. Last year, the commodity peaked at $235 on June 29, the data show.

NWR will further cut jobs, curb mining costs and investment and focus on producing the more profitable coking coal rather than thermal coal, according to its statement.

“The directors have a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future,” the company said in yesterday’s statement.

NWR completed 60 million euros in cash-enhancing measures in the first half of 2013 out of the full-year 100 million euro plan, according to a presentation published on its website yesterday. It had a positive net cash flow from operations of 15.9 million euros in the second quarter, compared with a negative 22.1 million euros in the previous three months.

Burning Cash

NWR’s reliance on future coal prices, savings measures, the disposal of OKK and the need to renegotiate loan terms pose “a material uncertainty which may cast significant doubt as to the group’s ability to continue,” KPMG Audit Plc wrote in a note attached to the earnings release.

NWR held 176 million euros of cash as of June 30, down from 267 million euros on Dec. 31 and compared with the company’s debt burden of 829 million euros, including 14 million euros repayable in the next 12 months, the company said.

“Investors weren’t completely sure if NWR would manage to prevent further cash burn, and the second-quarter results showed that the company has been relatively successful on this front,” Marek Hatlapatka, chief strategist at Cyrrus AS brokerage in Brno, Czech Republic, wrote in e-mailed comments. “That doesn’t mean that NWR won. Key steps are yet to come.”

To contact the reporter on this story: Krystof Chamonikolas in Prague at kchamonikola@bloomberg.net

To contact the editor responsible for this story: Wojciech Moskwa at wmoskwa@bloomberg.net

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