The 1Q disappointed our expectations on price realisations and costs, and we infer a 1Q cash burn of +$50m (ex-asset sales & receivables unwind). Our base case forecasts now infer that CRN will require debt covenant waivers to be extended beyond Sep-30. We apply a 10% discount to our revised DCF valuation to derive our target, reflecting the risk of balance sheet strain/ remediation if weak coal prices persist. We think holders should tread cautiously and we continue to advocate trimming overweight positions. Our valuation adjusts for: 1) lower short term coal price assumptions; 2) lower forecast price realisations; 3) slightly higher production forecasts; 4) a higher WACC (risk) assumption; and 4) higher cost assumptions. We now apply a 10% discount to our DCF valuation to derive our target, to reflect potential balance sheet strain in a weak coal price scenario.
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