Seeking Alpha: Natural Resource Partners Will Likely See Things Get Worse Before Any Turnaround

Natural Resource Partners (NYSE:NRP) continues to find itself in a tough spot. Utilities have significantly curtailed their use of thermal coal from Appalachia, met coal prices continue to scrape bottom, oil prices are well below the levels contemplated when the partnership diversified into petroleum, and aggregates and soda ash just aren't profitable enough to fill the gap. Like so many others in the coal space, conservation of liquidity and living to fight another day have become paramount and Natural Resource Partners has slashed its payout to preserve capital.

In my opinion, expectations of a recovery in utility demand for App coal is unrealistic and met coal may likewise never be what it once was. I believe the growth in NRP's aggregates business can partially fill the gap over time and the oil/gas business is a wildcard with upside potential, but NRP is unlikely to be in a position to raise its distribution for several years. A yield above 9% doesn't look bad today, but investors can find similar opportunities at Alliance Resource Partners (NASDAQ:ARLP) and OCI Resources LP (NYSE:OCIR) and arguably higher quality. I do think NRP's shares look pretty beaten up and the distribution should be well-covered even with no recovery in coal, but the coal sector has certainly been teaching the lesson over the last couple of years that conditions can always get worse.

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Natural Resource Partners Will Likely See Things Get Worse Before Any Turnaround

Seeking Alpha: Arch Coal Holding On For An Appalachian-Driven Rebound

U.S. coal stocks have been almost universally pasted, and it's not hard to see why. Many price indexes have carved out new lows, and EBITDA has shrunk to a point where many companies are in a tight squeeze with respect to interest and debt payments. Worse still, there are signs that several key markets may be changing (or have already changed) in ways that fundamentally alter the long-term outlook for U.S. coal producers.

Arch Coal (NYSE:ACI) is one of the companies that finds itself in a tricky spot. While the company should have adequate liquidity for several more years, that liquidity won't last indefinitely, and this is one of the companies potentially at risk from fundamental changes to the markets it has served for so many years. Arch Coal does offer impressive leverage to any near-term recovery in coal prices, akin to what investors have seen with some of the more leveraged and commoditized energy service companies lately, but this is by no means a safe play on a troubled sector.

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Arch Coal Holding On For An Appalachian-Driven Rebound

Seeking Alpha: Cost Reductions Alone Can't Save Alpha Natural Resources

Unlike Cloud Peak Energy (NYSE:CLD) and Peabody Energy (NYSE:BTU), I'm not certain that Alpha Natural Resources (NYSE:ANR) will have the staying power to exploit a recovery in the high-quality coal that it mines in Appalachia. As is the case with commodity stocks, there is a return/quality trade-off here that may seem counterintuitive - Alpha Natural doesn't appear to have staying power at today's coal prices, but a solid recovery in prices would have a much more profound impact on the stock price than for Cloud Peak or Peabody (and likely Arch Coal (NYSE:ACI) as well).

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Cost Reductions Alone Can't Save Alpha Natural Resources

Seeking Alpha: Peabody Energy Not In Serious Danger, But Still Needs Higher Prices

As I work my way through the coal companies that interest me, Peabody Energy (NYSE:BTU) is in a tricky spot. Relative to Alpha Natural Resources (NYSE:ANR) and Arch Coal (NYSE:ACI), I don't think there's really a long-term liquidity problem here, but then the company also needs to see a real recovery in metallurgical coal and I'm not sold on the company's position here.

Peabody's share price still seems to include a quality premium and I don't have a problem with that. The balance sheet isn't pristine, and the company slashed the dividend to preserve liquidity, but the company's well-placed in the U.S. Powder River Basin (or PRB) market and leveraged to growing coal imports in China and India.

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Peabody Energy Not In Serious Danger, But Still Needs Higher Prices

Seeking Alpha: Cloud Peak Energy Dug In For The Long Haul

Cloud Peak Energy (NYSE:CLD) has done better than most of its peer group over the past year, but does that really count for much when the shares are still down almost two-thirds? Making matters worse, pricing for thermal coal continues to be weak both in the U.S. and in the export markets, giving producers like Cloud Peak no place to hide.

Powder River Basin (or PRB) coal is barely competitive with natural gas at current prices and isn't competitive with Australian or Indonesian coal in Asian markets, but there is some hope that coal and gas prices could bottom this year. Cloud Peak also benefits from a low cost basis and a relatively comfortable liquidity position. The shares of coal companies are pretty speculative today, particularly as the industry is likely is long-term decline in the U.S., but Cloud Peak does still offer some worthwhile upside if/when coal prices do finally reach that bottom.

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Cloud Peak Energy Dug In For The Long Haul

Seeking Alpha: Weak Coal Only Part Of The Natural Resource Partners Story

Maybe the nicest thing I can say about Natural Resources Partners LP (NYSE:NRP) since the last time I wrote on this partnership is that it hasn't done as badly as other companies with substantial Appalachian coal assets like Arch Coal (NYSE:ACI) or Alpha Natural Resources (NYSE:ANR). An unexpected distribution cut took a lot out of the units in mid-January and the market seems relatively disinclined to put much value on the partnership's efforts to diversify away from coal.

I think that's a mistake; the company's heavy reliance on App coal is a risk, but a known risk. At the same time, the company is reducing leverage and has made good strides in adding quality assets like its stake in OCI Wyoming LP (where OCI Resources LP (NYSE:OCIR) owns the controlling interest) and ownership interests in aggregates and oil/gas acreage. The long-term outlook for Appalachian coal is pretty dismal right now, but any upside at all would be in NRP's favor and I believe there are still some credible reasons for holding these units.

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Weak Coal Only Part Of The Natural Resource Partners Story

Seeking Alpha: Cloud Peak Energy Still Generating Cash In A Tough Market

I had my doubts earlier this year as to whether the optimism over coal would last and it hasn't - the major pure-play producers are all looking at double-digit declines in their stocks. I did think that Cloud Peak Energy (NYSE:CLD) was better-positioned than most and the shares have performed relatively better - down about 12% versus a nearly 20% decline for Peabody Energy (NYSE:BTU), a 30% decline for Arch Coal (NYSE:ACI), and a nearly 50% decline for Alpha Natural Resources (NYSE:ANR).

Is this the right time to jump back into Cloud Peak? I continue to believe that Cloud Peak has the best long-term cost structure of the U.S.-based miners and that Powder River Basin coal (which is all that the company mines) will be the "last man standing" even if utilities turn even more toward gas and renewables for the long term. The upside here if thermal coal prices recover is pretty attractive, not to mention the long-term upside of Asian exports, but this is an idea where investors have to be willing and able to wait a while for the value opportunity to develop.

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Cloud Peak Energy Still Generating Cash In A Tough Market

Seeking Alpha: Peabody Energy Still Waiting For Better Days

Discussions of relative performance always need to anchored with the question of "relative to what?". Peabody Energy (NYSE:BTU) has been one of the best-performing U.S. coal companies year-to-date and over the last year (edged out in both cases by Cloud Peak (NYSE:CLD), and handily beaten by quasi-coal company CONSOL Energy (NYSE:CNX)), but the coal sector has continued to get thumped on weak met coal pricing, long-term concerns about EPA regulations for thermal coal, and rail shipments from the Powder River Basin.

I continue to believe that Peabody Energy is the best-positioned U.S. coal company for the long term. This year may see the company go FCF-negative, but Peabody can generate positive free cash flow at coal prices well below the breakeven levels for Alpha Natural (NYSE:ANR) or Arch Coal (NYSE:ACI). I also like the company's asset base (Illinois and Powder River Basin in the U.S., Australian met coal). While Alpha Natural has more upside if met coal prices suddenly shoot up again, I think Peabody is the better risk-adjusted pick overall.

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Peabody Energy Still Waiting For Better Days

Seeking Alpha: Alpha Natural Resources Can Most Likely Survive, But Can It Thrive?

In a brutal market for coal producers, Alpha Natural Resources (NYSE:ANR) management has done a commendable job of cutting costs and enhancing liquidity. Unfortunately, the $170 to $180 per tonne in met coal pricing that the company needs for positive free cash flow seems a long way off. Companies like Anglo American (OTCPK:AAUKY) have in the past struck lucky when key producing areas have been hit by significant disruptions and the significant short interest here is a bit like a coiled spring for any good news. That said, a 10x multiple to 2016 EBITDA discounted back doesn't offer huge upside and this is only a stock for those who can handle above-average risks and a long wait.

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Alpha Natural Resources Can Most Likely Survive, But Can It Thrive?

Seeking Alpha: James River Coal Fighting A Losing Battle With Time

Cold weather and higher natural gas prices have arrived in force, but it may be too little too late for James River Coal (JRCC) and its investors. This Appalachian coal company has made under-appreciated strides in lowering its production cost base and rationalizing production levels to prevailing prices, but it may not be enough. With liquidity running thin and coal prices still short of where they need to be, James River is going to have to pull a rabbit or two out of its hat to maintain enough liquidity to see any benefit from a 2015/2016 recovery in coal prices.

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James River Coal Fighting A Losing Battle With Time

Seeking Alpha: Cold Weather, Low Costs, And Higher Gas Helping Cloud Peak Energy

Powder River Basin coal specialist Cloud Peak Energy (CLD) is a fairly simple coal play. Unlike Peabody Coal (BTU), Alpha Natural (ANR), or Arch Coal (ACI) that rely to varying degrees on metallurgical coal, exports, and/or thermal coal mined in Appalachia, Cloud Peak is a US-focused play on the lower-sulfur coal mined in the PRB region. If natural gas prices remain above $3.50/mmBTU, Cloud Peak should be able to log solid margins and generate good cash flow and if the U.S. gets even more stringent with rules concerning sulfur emissions, it will only help Cloud Peak.

Cloud Peak's leverage to gas prices is not lost on the Street. As PRB coal prices have marched from around $8/ton at the start of the fall to around $12/ton, so too have the shares moved up around 20%. It remains to be seen if natural gas prices will prove sticky enough to maintain good PRB coal pricing (and/or whether companies like Arch Coal will expand production), but it looks like Cloud Peak is still priced to offer a better return than normal market averages if you believe that PRB coal prices can stay at $14/ton or higher for the long term.

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Cold Weather, Low Costs, And Higher Gas Helping Cloud Peak Energy

Seeking Alpha: Could Natural Resource Partners Be Seeing A Bottoming Out In Coal?

Investors in the coal sector have been waiting for a light at the end of the tunnel for some time now, but so far any new lights have just been another oncoming train. Natural Resource Partners (NRP) has held better than most though, as the company's strategy of operating as a royalty-collecting lessor helps mitigate some of the operating issues that miners like Arch Coal (ACI), Cloud Peak (CLD), and Alpha Natural Resources (ANR) have faced. It also has done the stock no harm to see management move in a similar direction to Penn Virginia Resource Partners (PVR) and prioritize diversification away from coal.

Even with diversification, coal royalties are still two-thirds of the revenue base and a key driver of the company's cash flow and distributions. With that, I do wonder if we have seen the worst of times in the U.S. thermal coal and global met coal markets. There are certainly stocks out there with more leverage to higher coal prices (Arch Coal and Cloud Peak certainly among them), but Natural Resource Partners' large distribution and apparent undervaluation do make this a name worth checking out today.

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Could Natural Resource Partners Be Seeing A Bottoming Out In Coal?

The Motley Fool: Cutting Costs Won't Solve All of Alpha Natural Resources' Problems

In what has remained a stubbornly miserable market for coal stocks, Alpha Natural Resources (NYSE: ANR  ) stands out, perhaps, as one of the less-bad names this year. While coal companies like Arch Coal, Peabody, Cloud Peak, Walter Energy, and James River have seen double-digit stock price declines in the past year (with the last two down nearly 50%), Alpha Natural has somehow squeaked out a tiny gain as of this writing.

To be sure, Alpha Natural's management deserves praise for the cost cuts that they have already achieved and the benefit of the doubt with respect to additional targeted cost cuts for 2014. The problem, though, is that I don't see how any coal company, and particularly a met-coal company like Alpha Natural, can cost-cut its way back to prosperity.

Unless European and Brazilian steel mills get moving again with respect to product and seaborne thermal-coal prices improve, it seems likely to me that the cost cuts will simply keep Alpha Natural in the game. For the stock to work, you must believe that better coal prices are coming soon, or at least that the Street will believe that, and production guidance doesn't seem to be pointing in that direction.

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Cutting Costs Won't Solve All of Alpha Natural Resources' Problems

Investopedia: Cloud Peak Energy May Have A Steeper Road To Recovery

Multiple sell-side analysts keep talking about the thermal coal recovery, but Wall Street seems to be responding with “that's okay, after you...”. On a six-month, year-to-date, and three-month basis, the shares of most of the major U.S. coal producers are in the red, with the met-coal miners like Peabody (NYSE:BTU), Arch Coal (NYSE:ACI), and Alpha Natural (NYSE:ANR) under-performing the thermal-focused Cloud Peak Energy (NYSE:CLD).

It's true that natural gas prices have risen of late, making coal more cost-competitive. It's also true that coal inventories have been worked down at utilities and that miners have been relatively responsible in idling marginal mines.

It's still not abundantly clear that Cloud Peak Energy offers a great opportunity today. While this is a very well-run miner with solid assets, the counter-intuitive reality is that it's offer the lesser operators that see the biggest stock price improvements early in a recovery. It's also not certain that this “recovery” has legs or will show up in the numbers anytime soon, as there is ample capacity, prices are still weak, and margins are very thin. While I think Cloud Peak is on balance a good play on an eventual thermal coal recovery, investors are going to need patience for this stock to work.

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Investopedia: Can Alpha Natural Resources Find The Bottom?

It's been a pretty miserable summer for coal companies, as low natural gas prices and sluggish steel production have eviscerated prices for both thermal and metallurgical coal. As a debt-heavy company with major exposure to the very much out-of-favor Appalachia region, Alpha Natural Resources (NYSE:ANR) has seen its stock take an absolute pounding. Although valuation suggests extreme pessimism, investors cannot afford not to consider the risk that conditions could get even worse.

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Seeking Alpha: Peabody Energy Still In Limbo; How Low Can It Go?

The investment thesis on Peabody Energy (BTU) continues to be that it's the best house on a pretty scary street - a street that increasingly looking like Elm Street for long-suffering investors. If there's good news in the company's second quarter results, it's that the Street seems to still be washing out expectations despite some signs of improvement in the U.S. coal business. While this remains an interesting asset-driven company for the long term, the coal sector has shown in spades that the answer to the question of how much worse things can get is "a lot worse".

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Peabody Energy Still In Limbo; How Low Can It Go?

Seeking Alpha: How Did It All Go So Wrong For Patriot Coal?

I imagine a few investors are feeling pretty confused now, with news that Patriot Coal (PCX) has declared bankruptcy. So how is that a company whose assets ought to hold hundreds of millions of dollars worth of net value is going the route of bankruptcy?

Cue The Outrage
It is a pretty safe bet that we'll all hear from the anti-Obama contingent before long, and not without some reason. Notions like "Obama is trying to kill private enterprise" is garbage better suited to talk radio, but the fact remains that the Obama administration has made it meaningfully more difficult to be in the coal business. Whether it's OSHA regulations that cover underground mine operators like Patriot, Arch Coal (ACI), or Alpha Natural Resources (ANR), or EPA regulations that make it more expensive to burn coal for electricity generation, it's not easy to be in the Appalachian coal business (and not all that much better to be in Powder River Basin).

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How Did It All Go So Wrong For Patriot Coal?

Seeking Alpha: Patriot Coal: Different Coal Company, Same Coal Situation

How bad is the coal market? Some electrical utilities are paying coal companies *not* to ship them any more coal (negotiated deferrals). Couple that with rapidly escalating costs and heavy regulatory burdens on underground mining and a wobbly market for coking (metallurgical) coal, and Patriot Coal (PCX) is in the same leaky boat as Peabody (BTU), Arch Coal (ACI), and Walter (WLT).

There's definitely value at Patriot coal - at current production levels, Patriot's reserves will outlive most of us. The relevant questions for the stock, though, revolve around whether the market can recover fast enough to forebear a difficult liquidity situation and whether the U.S. government will let miners like Patriot stay in business.

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Patriot Coal: Different Coal Company, Same Coal Situation

Investopedia: Rails Struggling To Replace King Coal

Investors still seem fully invested in the idea of ongoing economic recovery, but maybe that is starting to fade a bit. Not only have investors had to digest disappointing news on job growth, but rail traffic and other economic numbers are starting to look a little wobbly. The question for rail investors, then, is whether there's enough momentum left to replace the ongoing weak demand for coal.

March Numbers Look Familiar
"Ex-coal" has become an important qualifier when looking at recent railroad traffic data, and March was no exception. U.S. rail traffic dropped almost 6% on a year-over-year basis, and over 3% month-over-month for March. Ex-coal, the comparison improves to 2.4% (year over year) and ex-coal and ex-grain, it jumps further to 4.4%. While that's all well and good for the economy, the fact remains that lower carload volume is a headwind for rail operators.

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Investopedia: Cloud Peak Energy - The Power In Powder

Although 2011 was not an especially strong year for any industrial commodity, it was a pretty lousy year for coal. Export volume stayed pretty high, but momentum was sapped by weakness in met coal and a general cooling-off of what was probably far too much investor enthusiasm to start with. As is almost always the case, it wasn't different this time.

That being said, investors may yet want to bone up on Cloud Peak Energy (NYSE:CLD). As a pure play on the closest thing to clean coal, Cloud Peak could see stronger demand in both domestic and export markets, as well perhaps as interest from larger buyers. (For more, see Earning Forecasts: A Primer.)

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