Thursday, May 28, 2015

Alpha Natural Resources, Arch Coal in danger of being taken off New York Stock Exchange

Stock prices for Alpha Natural Resources and Arch Coal "have fallen so low that they're at risk of being taken off the New York Stock Exchange," Saqib Rahim reports for EnergyWire. Both companies "have recently traded at an average of less than $1 per share for 30 consecutive trading days. They have six months to get back over the $1 threshold, or the NYSE may delist them."

An increase of natural gas use, new environmental regulations, a decline of coal exports to Asia and cheaper coal in the West has hurt coal sites in Central Appalachia. That has led to coal prices dropping 33 percent over the past four years, making operations unprofitable for about 72 percent of Central Appalachian coal mines in Kentucky, West Virginia and Virginia. Last week Alpha announced it was closing its underground Rockspring Development Camp Creek mine in Wayne County, West Virginia, that employs 439 and was also cutting 71 jobs at facilities in Kentucky and West Virginia.

"In 2010 and 2011 especially, U.S. producers borrowed heavily to pay for a buying spree of coal assets," Rahim writes. "Chinese demand was surging, causing coal prices to spike and putting the global industry in an expansionary mood. U.S. capital markets obliged them: Arch topped $35 a share in early 2011, and Alpha nudged above $60. But by mid-2011, the global market was swamped. Prices began to dive. In the U.S., hydraulic fracturing began to transform the natural gas supply. Just as the coal business became less lucrative, U.S. producers found themselves with huge debt bills."

Matt Preston, research director for North America coal markets at Wood Mackenzie, told Rahim, "If it wasn't for that debt, I don't think any of the coal companies would be nearly in as much trouble as they are. The properties are OK; it's just that the coal companies themselves are not financially sound. As soon as the debt issue gets figured out, there'll be coal companies around mining coal."

Arch, Alpha and Peabody Energy Corp. "carry more than $16 billion in long-term debt," Rahim writes. "They're paying millions in interest, which is making it hard for them to fund ongoing coal operations. Capital markets are keeping a wary distance."

One option is to "borrow from a private-equity firm, promising it a chunk of stock ownership in the future," Rahim writes. Other options are to "agree to get bought out by a private-equity company, going off the public markets," to declare bankruptcy or, if an investor believes the company is redeemable, to restructure the company and return to public markets in a few years. (Read more)

No comments: