Coal Preparation
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America’s Big Coal Mining Companies are Profiting and Looking for Investors

Published: November 15, 2017 |

The bucket of a dragline excavator moves earth while mining coal at the Peabody Energy Somerville Central strip mine.

The bucket of a dragline excavator moves earth while mining coal at the Peabody Energy Somerville Central strip mine.
[Click image to enlarge]

Boosted by higher global prices, U.S. coal miners are showing they can make money again. Now, for the hard part — winning back investors.

Five of America’s largest coal producers — Alliance Resource Partners, Arch Coal, Cloud Peak Energy, Peabody and Warrior Met Coal — reported a combined $801 million in third-quarter earnings before interest, taxes, depreciation and amortization. That’s up from $454 million from the year-ago period, company filings show, and St. Louis-based Peabody’s highest tally since 2012. And it’s helping management teams carry out shareholder-friendly tactics including stock buybacks and dividends.

“Things are much better than they were a year ago, and much better than they were two, three, four years ago,” said Andrew Cosgrove, an analyst at Bloomberg Intelligence. “All told, the outlook is relatively positive.”

That’s a sharp reversal from recent years, when low coal prices and high debt levels forced many of America’s largest miners into bankruptcy. Now, with those companies back with cleaned-up balance sheets, the industry is enjoying a period of higher seaborne prices for thermal coal, which is burned by power plants, and metallurgical coal, a steelmaking component. The elevated prices are thanks, in part, to China’s increased imports of the fossil fuel this year.

Of course, not everything is rosy. The U.S. thermal coal sector is still sluggish, mired in a longer-term problem — namely, that U.S. electricity demand is flat and there’s rising competition from cheap natural gas, wind and solar power. Prices will probably stay low for much of 2018, Robert Moore, CEO of St. Louis-based Foresight Energy, told analysts. Foresight, along with others, plans to focus more on exporting coal next year.

Another challenge facing miners is pulling in more investors. Hedge funds dominate companies’ shareholder ranks, creating volatility when they trade in and out of positions frequently. Excluding index funds, Peabody only had four or five conventional “long-only” investor funds among its top 20 shareholders recently, while Arch Coal, which has headquarters in Creve Coeur, had six or seven, Mark Levin, an analyst at Seaport Global Securities, wrote in a note Tuesday.

“Coal equities have an enormous opportunity,” Levin said. “Coal is under-owned by a group that has significantly more assets/buying power than hedge funds.”

Source: St. Louis Dispatch


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