Seeking Alpha: New World Resources Fighting Hard To Keep A Recovery In Play

It doesn't matter if you look at U.S.-only miners like Arch Coal (ACI) or James River (JRCC), international miners like Rio Tinto (RIO) and Peabody (BTU), or European miners like Mechel (MTL) and New World Resources (OTC:NWFFF) (NWR.L), there is a whole lot of pain in the sector as companies struggle with low prices and particularly in the met coal world.

The largest miner in the Czech Republic and one of the largest in Europe, New World is scrambling to cut costs and rationalize production in order to stem losses and cash burn in the midst of difficult pricing. I believe the company's moves will keep them in the game for at least a little while longer, but it's going to take met coal prices above $160 per tonne for New World to make it. With that, New World is not a particularly interesting idea if you buy the current sell-side expectations for met coal prices during 2014-2018, but should met coal prices go another run to $180 or higher, these shares will likely do very well.

While these shares technically have a U.S. ticker , that is for all intents and purposes a dead listing. The best practical way these shares is to own those traded on the LSE (the NWR.L), though shares do trade in Prague and Warsaw as well.

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New World Resources Fighting Hard To Keep A Recovery In Play

Seeking Alpha: Mechel Offers A Spin Of The Met Coal Roulette Wheel

No sense in beating around the bush - unless you believe something is going to prompt a serious upward turn in inflation, and particularly in the price of met coal, Russia's Mechel (MTL) is basically worthless today. It's virtually impossible to run a DCF analysis that suggests a positive fair value unless you're willing to assume much higher met coal prices and a high degree of forbearance on the part of lenders.

But to paraphrase from the classic comedy "Dumb and Dumber," I'm saying there's a chance. The majority of Mechel's debt is borrowed from Russian state banks and they do not appear particularly eager to take a hard line with the company - they don't want to have to recognize the losses on their own books, to say nothing of the political fallout of potentially throwing tens of thousands of people out of work. While I see it as much more likely that Mechel shuffles along as a corporate zombie, the hesitancy of the company's lenders gives it at least a shot of surviving to see better met coal and steel prices.

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Mechel Offers A Spin Of The Met Coal Roulette Wheel

Seeking Alpha: Can Much-Maligned Mechel Outperform?

Although the rally in steel stocks has cooled in February, investors are still generally optimistic on the outlook for domestic names like Steel Dynamics (STLD) and Nucor (NUE), as well as global plays like ArcelorMittal (MT). That enthusiasm has not extended out to Russia's Mechel (MTL) to the same degree, as analysts are concerned not only about the company's higher-cost steel operations, but also its over-leveraged balance sheet and its unimpressive history of organic growth.

Can Integration Pay Off?
As the largest producer of coking coal in Russia (with well over 20% share), and a large iron ore miner as well, Mechel is well-covered for its own steel needs, and it's the second-largest long steel maker in Russia (behind Evraz). Unfortunately, this level of internal integration hasn't necessarily always paid off for shareholders.

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Can Much-Maligned Mechel Outperform?