SunCoke Energy Announces Dropdown Strategy for Domestic Cokemaking Assets
03/11/2014 - SunCoke Energy, Inc. (SXC) announced plans to drop down over time the company’s entire domestic coke business to SunCoke Energy Partners, L.P. (SXCP), and its strategic intent to exit the Coal Mining business.
SXC is the sponsor, general partner and largest unitholder of SXCP, holding a 56% limited partnership interest and all the incentive distribution rights.
As a part of management’s multi-year plan, the Board of Directors approved the initial dropdown of a 33% interest in the Haverhill and Middletown cokemaking operations, in which SXCP already holds a 65% interest. SXC will continue to retain a 2% interest in both facilities. Although terms have not yet been finalized, SXC anticipates SXCP will finance this transaction through a combination of equity and debt.
Fritz Henderson, SunCoke Energy’s chairman and chief executive officer, stated, “With the expiration of certain provisions in our tax sharing agreement with Sunoco, we gain greater flexibility to evolve our structure and unlock value for shareholders. The first step is to begin executing a plan to drop down our entire domestic cokemaking business to SXCP over the next few years. We believe this strategy will create significant value for shareholders directly through the proceeds received for the assets dropped down and indirectly through the increase in value of our SXCP ownership interest and higher total cash distributions paid to us, including incentive distribution rights.”
Henderson continued, “In addition, our new flexibility enables us to consider additional restructuring options for our Coal Mining business. While our Coal Mining team has delivered significant improvement in productivity, safety and production costs, we believe shareholder value will increase if we exit this business. We have retained an advisor and are currently evaluating strategic options in this regard.”
The company discussed these announcements, its initiatives to enhance the productivity of existing assets and potential growth opportunities in the cokemaking, coal logistics and ferrous processing businesses at a joint Investor Day meeting held today with SXCP.
Also at this meeting, SXC noted that the effect of severe winter weather across its operations and challenges at its Indiana Harbor cokemaking facility, which is undergoing a significant refurbishment, negatively impacted coke production by an estimated 60,000 tons. Due to these issues, the company expects first quarter 2014 Adjusted EBITDA to be lower by a projected US$10 million to US$15 million. As a result, SXC currently expects full year 2014 Adjusted EBITDA to be in the lower half of its guidance range of US$230 million to US$255 million.
SunCoke Energy, Inc. is the largest independent producer of coke in the Americas, with 50 years of experience supplying coke to the integrated steel industry. Its advanced, heat-recovery cokemaking process produces high-quality coke for use in steelmaking, typically captures waste heat for derivative energy resale and meets or exceeds environmental standards. Its U.S. cokemaking facilities are located in Virginia, Indiana, Ohio and Illinois. Outside the U.S., it has cokemaking operations in Vitoria, Brazil, and Odisha, India. Its coal mining operations, which have more than 110 million tons of proven and probable reserves, are located in Virginia and West Virginia. In addition, through its 58% ownership of SXCP, it has an interest in SXCP's coal logistics business which have the collective capacity to blend and transload more than 30 million tons of coal annually.
As a part of management’s multi-year plan, the Board of Directors approved the initial dropdown of a 33% interest in the Haverhill and Middletown cokemaking operations, in which SXCP already holds a 65% interest. SXC will continue to retain a 2% interest in both facilities. Although terms have not yet been finalized, SXC anticipates SXCP will finance this transaction through a combination of equity and debt.
Fritz Henderson, SunCoke Energy’s chairman and chief executive officer, stated, “With the expiration of certain provisions in our tax sharing agreement with Sunoco, we gain greater flexibility to evolve our structure and unlock value for shareholders. The first step is to begin executing a plan to drop down our entire domestic cokemaking business to SXCP over the next few years. We believe this strategy will create significant value for shareholders directly through the proceeds received for the assets dropped down and indirectly through the increase in value of our SXCP ownership interest and higher total cash distributions paid to us, including incentive distribution rights.”
Henderson continued, “In addition, our new flexibility enables us to consider additional restructuring options for our Coal Mining business. While our Coal Mining team has delivered significant improvement in productivity, safety and production costs, we believe shareholder value will increase if we exit this business. We have retained an advisor and are currently evaluating strategic options in this regard.”
The company discussed these announcements, its initiatives to enhance the productivity of existing assets and potential growth opportunities in the cokemaking, coal logistics and ferrous processing businesses at a joint Investor Day meeting held today with SXCP.
Also at this meeting, SXC noted that the effect of severe winter weather across its operations and challenges at its Indiana Harbor cokemaking facility, which is undergoing a significant refurbishment, negatively impacted coke production by an estimated 60,000 tons. Due to these issues, the company expects first quarter 2014 Adjusted EBITDA to be lower by a projected US$10 million to US$15 million. As a result, SXC currently expects full year 2014 Adjusted EBITDA to be in the lower half of its guidance range of US$230 million to US$255 million.
SunCoke Energy, Inc. is the largest independent producer of coke in the Americas, with 50 years of experience supplying coke to the integrated steel industry. Its advanced, heat-recovery cokemaking process produces high-quality coke for use in steelmaking, typically captures waste heat for derivative energy resale and meets or exceeds environmental standards. Its U.S. cokemaking facilities are located in Virginia, Indiana, Ohio and Illinois. Outside the U.S., it has cokemaking operations in Vitoria, Brazil, and Odisha, India. Its coal mining operations, which have more than 110 million tons of proven and probable reserves, are located in Virginia and West Virginia. In addition, through its 58% ownership of SXCP, it has an interest in SXCP's coal logistics business which have the collective capacity to blend and transload more than 30 million tons of coal annually.
