Executive Summary / Key Takeaways

• Strategic Diversification: SunCoke Energy is actively transforming its business model beyond traditional metallurgical coke production through the strategic acquisition of Phoenix Global, expanding into mission-critical industrial services for a broader steel customer base, including electric arc furnace (EAF) operators.
• Resilient Core & Technological Edge: As the largest independent coke producer in the Americas, SunCoke leverages its modern heat recovery technology to generate additional revenue from energy sales and maintain operational efficiency, providing a foundational competitive advantage despite cyclical steel industry headwinds.
• Disciplined Capital Allocation: The company maintains a strong liquidity position of $536.2 million and a consistent quarterly dividend of $0.12 per share, demonstrating a balanced approach to rewarding shareholders while funding strategic growth initiatives like the Phoenix acquisition and the Granulated Pig Iron (GPI) project.
• Outlook for H2 2025 Recovery: Despite a challenging first half, management reaffirms its full-year 2025 consolidated Adjusted EBITDA guidance of $210 million to $225 million, anticipating a normalization of coke sales mix and a return to normal run-rate performance in its Logistics segment.
• Market Headwinds & Opportunities: While facing a weak spot coke market and contract dynamics at Granite City and Haverhill, SunCoke is proactively securing sales volumes and pursuing organic growth opportunities within its expanded industrial services portfolio.

A Legacy Forged in Steel: Operational Excellence and Technological Edge

SunCoke Energy, founded in 1960, has established itself as the largest independent producer of high-quality metallurgical coke in the Americas, boasting over six decades of specialized experience. The company's core business revolves around heating metallurgical coal in refractory ovens to produce coke, a critical raw material for blast furnace steelmaking and foundry operations. This foundational business is largely underpinned by long-term, take-or-pay agreements, providing a stable revenue base that differentiates it from more volatile commodity producers.

A cornerstone of SunCoke's operational strength and competitive advantage lies in its proprietary heat recovery technology. Its cokemaking ovens are designed to combust volatile components liberated during the coking process, using the resulting heat to generate steam or electricity for sale. This innovative approach not only enhances energy efficiency but also provides a significant additional revenue stream, as evidenced by the Energy segment's $12.5 million in revenue in Q2 2025 and $25.3 million for the first six months of 2025. This technological differentiation contributes to lower operating costs and a more favorable environmental profile compared to older, less efficient coke plants, bolstering profitability and market appeal.

Over time, SunCoke has strategically evolved, expanding its cokemaking operations to five facilities across the U.S. with a collective capacity of approximately 4.2 million tons of blast furnace coke annually, alongside operating a facility in Brazil. The company demonstrated its adaptability during the challenging COVID-19 period, successfully developing foundry coke as a commercially viable product and strategically entering the spot blast coke market. This proactive diversification contributed to 2021 and 2022 being reported as the two best years in SunCoke's history, marked by robust free cash flow generation.

Strategic Diversification: The Phoenix Global Catalyst

SunCoke is now embarking on a pivotal strategic expansion designed to broaden its revenue base and reduce reliance on traditional blast furnace steelmaking. On May 28, 2025, the company announced a definitive agreement to acquire Phoenix Global for $325 million in cash, a transaction expected to close on August 1, 2025. This acquisition, valued at approximately 5.4 times Phoenix's last 12 months (LTM) Adjusted EBITDA of $61 million as of March 31, 2025, is anticipated to be immediately accretive to SunCoke's earnings.

Phoenix Global is a leading provider of mission-critical mill services to major steel-producing companies. This strategic fit extends SunCoke's reach to new industrial customers, including electric arc furnace (EAF) operators, which produce carbon and stainless steel, thereby significantly diversifying its customer base beyond traditional blast furnaces. Phoenix's global footprint and long-term, fixed-revenue contracts with pass-through components, where it does not take ownership of major consumables, align perfectly with SunCoke's existing business model, minimizing commodity price volatility exposure. Management expects to realize between $5 million and $10 million in annual synergies from this acquisition. Post-closing, Phoenix's operations will be combined with SunCoke's existing Logistics segment to form a new Industrial Services segment, creating multiple avenues for future organic growth by leveraging SunCoke's operational excellence and strong financial position.

Competitive Landscape: A Niche Leader in a Shifting Market

SunCoke operates within a complex and evolving industrial landscape, positioning itself as a specialized, value-added provider rather than a pure commodity producer. While direct comparisons with metallurgical coal miners like Alpha Metallurgical Resources (AMR), Arch Resources (ARCH), CONSOL Energy (CEIX), and Warrior Met Coal (HCC) reveal different operational models, SunCoke's integrated cokemaking and logistics services offer distinct advantages. These mining-focused competitors primarily extract and sell metallurgical coal, whereas SunCoke transforms coal into coke, a more refined product.

SunCoke's proprietary heat recovery technology provides a qualitative edge in coke quality and reliability, contributing to lower failure rates in steel production for its customers. While its operating costs may be marginally higher than some miners due to the investment in environmental technology, this enables superior margins in regulated markets and provides an additional revenue stream from energy sales. Financially, SunCoke's revenue growth (5-10%) has trailed that of some miners (10-25%), and its Return on Invested Capital (ROIC) and Return on Equity (ROE) (15-20%) are lower compared to the more asset-light mining operations (25-40%). However, SunCoke's net margins are comparable to its mining peers, reflecting its value-added services.

The company's logistics integration, particularly with its Kanawha River Terminal (KRT) and Convent Marine Terminal (CMT), offers uniquely integrated services, exploiting weaknesses in competitors' downstream capabilities and potentially leading to better pricing power. The recent $12 million expansion at KRT, increasing barge unloading capacity from 2 million to 5 million tons per year, further solidifies this advantage. High capital costs associated with building and maintaining cokemaking facilities, estimated at around $1 billion, serve as a significant barrier to entry, protecting SunCoke's market share against new entrants.

However, SunCoke faces vulnerabilities, including customer concentration with major steel producers like Cleveland-Cliffs (CLF) and U.S. Steel (X). The broader industry trend towards electrification and the increasing adoption of electric arc furnaces (EAFs) could reduce overall demand for blast furnace coke, although the Phoenix acquisition directly addresses this by expanding SunCoke's exposure to EAF operators. The U.S. Sustainability Plan, targeting 100% carbon pollution-free electricity by 2030, also presents a long-term headwind for coal-dependent industries, including coke production, necessitating continued strategic adaptation.

Financial Performance: Resilience Amidst Headwinds

SunCoke's recent financial performance reflects a challenging market environment, particularly in the spot coke market, yet demonstrates underlying resilience. For the second quarter of 2025, net income attributable to SunCoke Energy, Inc. was $1.9 million, a notable decrease from $21.5 million in the prior year period. Consolidated Adjusted EBITDA for Q2 2025 stood at $43.6 million, down from $63.5 million in Q2 2024. For the first six months of 2025, net income was $19.2 million (down from $41.5 million in H1 2024), and Consolidated Adjusted EBITDA was $103.4 million (down from $131.4 million in H1 2024).

The Domestic Coke segment's Adjusted EBITDA in Q2 2025 was $40.5 million, a decline from $57.9 million in Q2 2024. This was primarily driven by a less favorable mix of contract versus spot coke sales at Haverhill, where spot margins are significantly lower, and reduced economics from the Granite City contract extension. Domestic Coke Adjusted EBITDA per ton decreased to $42.95 in Q2 2025 from $59.51 in Q2 2024. The Logistics segment's Adjusted EBITDA was $7.7 million in Q2 2025, down from $12.2 million in Q2 2024, mainly due to lower transloading volumes and pricing at CMT. The Brazil Coke segment, however, remained stable, reporting $2.6 million in Adjusted EBITDA for Q2 2025.

Despite these pressures, SunCoke maintains a robust liquidity position. As of June 30, 2025, the company held $186.2 million in cash and cash equivalents and had a fully undrawn $350 million revolving credit facility, totaling $536.2 million in liquidity. The revolving facility was recently amended and extended to July 2030, albeit with a reduced capacity of $325 million, reflecting prudent financial management.

Cash flow from operations for the first six months of 2025 significantly improved to $43.3 million, compared to $0.7 million in the prior year period, primarily due to favorable working capital timing. Capital expenditures for the period were $17.5 million, a decrease from $33.4 million in H1 2024, reflecting a judicious approach to spending.

Outlook and Strategic Initiatives: Forging Ahead

SunCoke Energy's management remains confident in its full-year outlook, reaffirming consolidated Adjusted EBITDA guidance of $210 million to $225 million for 2025. This projection is underpinned by an expectation that Q2 2025 represented the trough for the Domestic Coke segment, with a recovery anticipated in the second half of the year. The company projects Domestic Coke Adjusted EBITDA to be between $185 million and $192 million for the full year, with total coke sales volumes of approximately 4 million tons, including 3.3 million tons under long-term contracts. The second half is expected to see a normalization of the sales mix, yielding an average Adjusted EBITDA margin of $46 to $48 per ton.

The Logistics segment is also expected to rebound, with full-year Adjusted EBITDA guidance reaffirmed at $45 million to $50 million. This recovery is supported by increased volumes at CMT in July and the completion of the KRT barge unloading expansion project, which is expected to contribute benefits starting in Q3 2025. The company anticipates handling approximately 4 million tons of coal exports and 4.1 million tons of non-coal throughput through CMT, alongside 14.8 million tons at its domestic terminals in 2025.

Free cash flow guidance for 2025 has been updated to $103 million to $118 million, reflecting $12 million to $14 million in transaction and debt issuance costs related to the Phoenix acquisition and revolver extension, offset by an expected $5 million to $9 million reduction in cash taxes due to recent tax law changes. Capital expenditures have been lowered to approximately $60 million for the year, reflecting a disciplined approach to spending following the completion of several large projects.

Strategic initiatives continue to drive the long-term narrative. The Granite City coke supply agreement with U.S. Steel has been extended through September 30, 2025, with an option for an additional three months, serving as a bridge for the ongoing Granulated Pig Iron (GPI) project. Despite frustrating delays related to the U.S. Steel-Nippon (NPSCY) transaction, the GPI project remains a top priority, with management emphasizing its strong economic fundamentals. The Phoenix Global acquisition is a cornerstone of SunCoke's growth strategy, promising diversification, new market access, and immediate accretion. Furthermore, the company's commitment to shareholder returns is evident in its consistent $0.12 per share quarterly dividend, which is expected to continue throughout 2025, demonstrating confidence in its cash generation capabilities even amidst strategic investments.

Conclusion

SunCoke Energy stands at a pivotal juncture, actively transforming its identity from a traditional coke producer to a more diversified industrial services provider. This strategic evolution, spearheaded by the accretive acquisition of Phoenix Global, is set to broaden its customer base, including the growing electric arc furnace market, and expand its global footprint. By leveraging its core strengths in operational excellence, proprietary heat recovery technology, and robust logistics infrastructure, SunCoke is strategically positioning itself for sustained growth beyond the cyclical nature of its legacy markets.

While the company faces near-term headwinds from a challenging spot coke market and evolving contract dynamics, its reaffirmation of 2025 guidance, coupled with disciplined capital allocation and a commitment to consistent shareholder returns, underscores its resilience. The successful integration of Phoenix Global and the eventual realization of the Granulated Pig Iron project's potential will be critical determinants of SunCoke's long-term value creation. Investors should recognize SunCoke's proactive approach to market shifts, its technological leadership, and its strategic pursuit of diversified, stable revenue streams as key drivers for future performance.