logo SGI

Meet the Czech billionaire betting big on Aussie coal

AFR, Sep 26, 2023                            Link to the original article

Pavel Tykac’s purchase of a 51 per cent stake in ASX miner Coronado Global Resources shows there’s still huge money to be made in coal’s final decades.

On the surface, the sale of a 51 per cent stake in Coronado Global Resources to Czech-based resources house Sev.en Global Investments for about $1.6 billion is a story about the unwillingness of Australian investors to support pure-play coal miners in an ESG-focused world.

Coronado was floated by private equity firm The Energy and Minerals Group five years ago, but always traded well below its $4 offer price. Even with the rise in metallurgical coal prices in recent years, Coronado’s price-to-earnings multiple has remained stuck well below that of coal peers and the broader resources sector.

EMG walks away after 12 years of at least occasionally frustrating ownership, leaving Sev.en to try its luck with a portfolio that includes the Curragh coal mine in Queensland and several other coal mines in the United States, which mostly produce metallurgical coal for steelmaking.

But there’s a bigger story at play here. And at the heart of it is the founder of Sev.en, the little-known Czech billionaire named Pavel Tykac, who has very rapidly built a $US7.8 billion ($12.1 billion) fortune by charging into a coal sector that others have fled.

Tykac’s back-story is fascinating. He operated as a computer distributor in the early 1990s, before ploughing profits into a small regional bank and then co-founding a firm called Motoinvest, which specialised in hostile takeovers during the period in which the Czech Republic’s assets were privatised.

Tykac gradually moved into the energy sector. The Sev.en empire includes Czech coal mining firms and a large heating plant, but more recently he has expanded into Europe, the US and Australia; in an interview with Reuters in May, Tyack says that strong rule of law and policy predictability were the big attractions in these Western markets.

In the US, Sev.en owns Blackhawk Mining, which produces 9 million tonnes of met coal each year, plus land holdings with reserves of 2 billion tonnes of coal.

But it is in Australia where Tykac’s interests have really expanded in the last 12 months. In September last year, Sev.en bought the Vales Point coal-fired power station and Chain Valley mine for several hundred million dollars. In May, Tykac swooped on royalties over two Queensland coal mines, paying former owner Coca-Cola Europacific Partners a reported $65 million. Sev.en also owns a West Australian potash project it bought out of administration last year.

Two key planks

The Coronado deal, which Sev.en chief executive Alan Svoboda described on Tuesday as a growth play, is clearly Tykac’s largest Australian bet. But it fits with the broad opportunity he outlined in that interview with Reuters in May, which is built on two key planks.

First, while Tykac admits that the future of coal and fossil fuels are limited, there are strong returns – and particularly strong cash flows – to be reaped in the meantime, including in thermal coal. “Without doubt this will end one day, but at the moment there are opportunities in this sector and we do not think there is any great rush ... the power plants are needed,” he said.

Met coal is a similar story; as Morgan Stanley said last week as it upgraded its long-term price outlook for the commodity, supply shortages are coming as demand holds firm but it gets harder and harder to build new mines.

The strong cash flow from coal is vital to the other plank of Tykac’s strategy: taking advantage of the retreat of mainstream finance from coal assets.

“The coal and fossil world is so badly financeable that it leads to the assets being much cheaper because they have to be financed by equity,” Tykac told Reuters, explaining that Sev.en had built enough equity that it could now write cheques “in the range of single billions of [US] dollars”.

The Coronado deal is a manifestation of that strategy. But it’s also a good example of the way the complex energy transition will create different types of fortunes.

Yes, billions will be made in renewable energy, hydrogen (probably) and a wide array of technological innovations. But entrepreneurs like Pavel Tykac are seeing big opportunities in coal’s final decades.