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: Arch Coal Still Looking For Light At The End Of The Tunnel

Badly beaten-down stocks can often look quite tempting to investors who appreciate how often the Street overshoots both during good times and bad. In the case of coal, though, that remains a difficult trade. Asian producers like China Shenhua (OTCPK:CSUAY) and PT Bukit Asam (OTCPK:TBNGY) continue to perform relatively well (as I've written here and here), but weak met coal pricing and ongoing rail disruptions in the Powder River Basin are bedeviling Arch Coal's (NYSE:ACI) operations.

Very few analysts are willing to stick their necks out for Arch Coal at this point, with five Strong Buy/Buy ratings matching the Underperform/Sell ratings (and 11 in the middle at "Hold"), and the short interest is around 15%. There is certainly still a real risk that met coal prices don't recover as expected (or should I say hoped?) in 2015 and beyond, and likewise a risk that domestic thermal demand declines further.

It's also very difficult to construct a model wherein these shares look truly cheap. All of that said, Arch Coal has about $1.25 billion in liquidity today, no major maturities until 2018, and may be able to limit the cash burn to $500 million between now and a return to positive free cash flow in 2017 or 2018. I'd much rather own China Shenhua, PT Bukit Asam, Peabody (NYSE:BTU), or Cloud Peak (NYSE:CLD) from a safety/certainty standpoint, and I still think Arch Coal is looking at a very difficult road, but I suppose there's a play here for investors who think that coal pessimism could bottom.

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Arch Coal Still Looking For Light At The End Of The Tunnel

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: Peabody Energy Looks For A Better Mix To Drive A Better Outcome

While it's U.S. peers like Arch Coal (ACI), James River Coal (JRCC), and Alpha Natural Resources (ANR) groan under the strain of less competitive Appalachian thermal and met coal assets, Peabody Energy (BTU) has neither. Peabody long ago got out of the Appalachian coal business and instead now offers relatively competitive thermal assets in the Powder River and Illinois Basins and met assets in Australian. Though these are far from fat times for Peabody, the company's asset mix, cost structure, and debt maturity schedule give it one of the stronger operating profiles today.

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Peabody Energy Looks For A Better Mix To Drive A Better Outcome

Seeking Alpha: Arch Coal Can't Catch A Break

Maybe the best thing that can be said about Arch Coal (ACI) recently is that the company's management has been able to execute a few transactions to give the company more breathing room. Pricing for Powder River Basin (or PRB) coal has been improving lately, but metallurgical coal pricing has continued to weaken, and Appalachian thermal coal just isn't competitive with natural gas today.

Some have called Arch Coal a long-dated call option on thermal and metallurgical coal price recoveries, and I suppose that is true to a point. It certainly has been the case in past cycles that improving prices benefit struggling operators more, so Arch Coal would likely offer more upside than Peabody Energy (BTU) or Cloud Peak Energy (CLD), were PRB prices to move into the high teens and/or met coal recovery above $160/ton.

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Arch Coal Can't Catch A Break

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

Seeking Alpha: Are Investors Getting Free Call Options On Advanced Emissions' Long-Tail Technologies?

Getting to this point hasn't been easy for Advanced Emissions Solutions (ADES), previously known as ADA-ES before a corporate restructuring (a legal/business structure restructuring, not a bankruptcy-related restructuring). Like most companies trying to market "clean coal" technologies, the company has faced regulatory uncertainties, a risk-averse customer base, and sector-wide image issues created by disreputable firms trying to capitalize on investor interest in the idea of making coal-fired electrical generation cleaner and more environmentally sustainable.

The solutions and services ADES provides don't make burning coal 100% clean, and there are still a host of long-term challenges facing coal as a fuel for electrical generation in the U.S., but the company's patented technologies and processes can help electrical utilities come into compliance with new regulations governing mercury emissions. While the way Advanced Emissions will generate most of its cash flow is fairly convoluted, it looks as though even the 75%-plus rise in the shares over the past year doesn't fully capture the potential value of the company. More to the point, relative to the company's potential cash flows from its Refined Coal operations, investors could be getting technologies like M-Prove and CO2 capture for virtually nothing today.

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Are Investors Getting Free Call Options On Advanced Emissions' Long-Tail Technologies?

Investopedia: CSX On Target, But Hard To Find A Reason To Pay Up

Although rail stocks have come a bit off their highs, particularly the eastern operators, Wall Street still remains pretty bullish on the prospects of rail continuing to take share from trucking. With that, an in-line quarter for CSX (NYSE:CSX) isn't likely to change the story much in either direction. Improvements in the coal business next year, a continued housing recovery, and ongoing growth in the intermodal business should all lead to better volume and operating profits, but the stock's valuation indicates that Wall Street is already counting on that happening.

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Investopedia: Rates Are A Risk, But PVR Partners Still An Interesting Distribution Play

I've been a fan of PVR Partners, LP (NYSE: PVR) (formerly known as Penn Virginia) for quite a while and through the company's migration from an Appalachian coal royalty trust to a more diversified business that now generates about two-thirds of its earnings from midstream natural gas operations. While the company took on a lot of debt to acquire Chief and that business has not ramped up quite as quickly as once hoped, and the company is facing generally slower growth in natural gas than expected, I believe the long-term appeal of this partnership is solid.

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Investopedia: Peabody Energy Carries Higher Expectations, But Solid Value

Having recently examined Arch Coal (NYSE:ACI) and Cloud Peak Energy (NYSE:CLD), it's time to examine the largest U.S. coal producer – Peabody Energy (NYSE:BTU). There is a lot to like about Peabody at first glance, as this company has attractive U.S. thermal coal exposure (with minimal Appalachian reserves) and heavily China-leveraged met coal exposure.

On the other hand, Peabody is arguably the most well-respected coal miner out there (and maybe one of the best-regarded natural resource companies overall) and investors and analysts consistently award the stock a higher multiple than its peers. Consequently, while Peabody may the highest-quality coal stock to own today, the upside in these shares to a thermal (and/or met) coal recovery doesn't seem as great as in its rivals.

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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: Joy Global's Qualty Not The Issue, But The Mining Capex Recovery Is

To its credit, Joy Global (NYSE:JOY) has done nothing during this cyclical mining equipment decline to shake investor confidence in the quality of the company or its management. Margins have held up surprisingly well, and new product development could help compensate for some of the weakness in the market. What's more, I don't think there's much doubt that coal demand will continue to increase around the world for at least the next decade or two. The question for investors, though, is the timing and magnitude of the upturn in equipment demand and how much of that is already incorporated into the shares.

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