Nice write up! But some numbers and assumptions seem totally off the mark. For example, HCC realized met coal price for Q3 2025 was $136/short ton or $150/metric ton. That’s much lower than what you are factoring in your bear case ($160).
My initial analysis and model was also done at a time when the company’s stock price of the company was trading at $43. Either way the company appeared to be deeply undervalued and there was no need to be granular. At current prices of $82 where the market has realised the value of the company, there is now a need to be granular. Point taken on the bear case assumption.
The realised sale rate is low currently as we are in a cyclical downturn. As mentioned in the writeup, I expect the long run met coal prices to normalise to 240/Mt levels based on the 90th cost percentile that is supported by SEA & India infrastructure buildout.
At the current depressed levels the realisation rate for HCC is hit both by lower prices and lower realisation rates.
Met coal prices have never fell below their 90th cost percentile over large duration of time. The bear case assumption assumes a realisation rate of 160/Mt for 5 years which is extremely bearish and assumes that there is no price recovery at all.
The bear case number is also only 6% off from current realisation rates and will not impact valuations much. Combined with the fact that the bear case has the highest weightage in my bull/bear/base case. The valuation is quite conservative.
Nice write up! But some numbers and assumptions seem totally off the mark. For example, HCC realized met coal price for Q3 2025 was $136/short ton or $150/metric ton. That’s much lower than what you are factoring in your bear case ($160).
My initial analysis and model was also done at a time when the company’s stock price of the company was trading at $43. Either way the company appeared to be deeply undervalued and there was no need to be granular. At current prices of $82 where the market has realised the value of the company, there is now a need to be granular. Point taken on the bear case assumption.
Fair enough! Thank you again for your helpful write up.
The realised sale rate is low currently as we are in a cyclical downturn. As mentioned in the writeup, I expect the long run met coal prices to normalise to 240/Mt levels based on the 90th cost percentile that is supported by SEA & India infrastructure buildout.
At the current depressed levels the realisation rate for HCC is hit both by lower prices and lower realisation rates.
Met coal prices have never fell below their 90th cost percentile over large duration of time. The bear case assumption assumes a realisation rate of 160/Mt for 5 years which is extremely bearish and assumes that there is no price recovery at all.
The bear case number is also only 6% off from current realisation rates and will not impact valuations much. Combined with the fact that the bear case has the highest weightage in my bull/bear/base case. The valuation is quite conservative.