SunCoke to Divest Domestic Coke Assets, Shares Dip - Analyst Blog

SunCoke Energy, Inc. SXC announced at its investor day that it plans to sell its domestic coke making assets to SunCoke Energy Partners, L.P. SXCP. The company also announced its strategic plan to exit the coal mining business altogether.

The announcement failed to invoke any positive sentiment from the investors with the share price falling nearly 6.0% to $21.28 from Mar 11.

SunCoke's domestic coke making and heat recovery operations are conducted at its Jewell, Indiana Harbor, Haverhill, Granite City and Middletown plants. Its coal mining business consists of metallurgical coal mining activities in Virginia and West Virginia.

The divestment of its domestic coke making operations will be done on a part by part basis, with an initial dropdown of a 33% interest at the Haverhill and Middletown operations. SunCoke Energy Partners is already a 65% interest holder in these assets while SunCoke Energy plans to retain a 2% interest in these units.

Though not confirmed, SunCoke Energy expects SunCoke Energy Partners to fund this transaction through a combination of equity and debt funding. If the above options are followed, the sale of coke assets will enhance SunCoke Energy's cash balance and enhance its ownership interest in the partnership.

SunCoke Energy reported a counterproductive Q4 and 2013 financial statement with a decline in consolidated revenues and earnings. As per the release, SunCoke reported a revenue drop of 21.8% in domestic coke operations and 23.8% in its mining business. While a decline in adjusted EBITDA of 9.5% was reported for domestic operations, coal mining operations incurred a loss of $8.9 million.

SunCoke Energy lowered its adjusted EBITDA projection for the first quarter by $10–$15 million. For the full year, the company expects adjusted EBITDA on the lower end of the $230–$255 million range. The reduced guidance takes into account operational challenges at its Indiana Harbor facility and unfavorable weather.

Other Stocks to Consider

SunCoke Energy currently holds a Zacks Rank #4 (Sell). However, other better ranked stocks in the same industry include Hallador Energy Company HNRG and Rhino Resource Partners LP RNO. Both these stocks sport a Zacks Rank #1 (Strong Buy).