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Coal Hopes Trump Can Remove 'Doom and Gloom' Lens Investors View Sector Through

President-elect Donald Trump had lots of campaign promises for the coal industry, but with even coal producers warning temperance when suggesting coal jobs will return, measuring Trump's aid to coal may prove tricky.

"None of it can be reversed. None of it," Murray Energy Corp. CEO Robert Murray said of coal's precipitous production decline in a recent interview with S&P Global Market Intelligence. "This is permanent destruction by Obama and his Democrat supporters."

Production has begun to rebound, but the long-term prospects for coal may be limited. However, there is a chance that with a new market normal, coal producers that have right-sized production could again begin recording profits after a dramatic restructuring of the industry, boosted by debt trimming enabled by the bankruptcy court. Coal stocks have already begun climbing, and analysts are again beginning to look favorably on Arch Coal Inc., Contura Energy, Inc. and smaller coal companies.

While production began to claw back from record lows in the second half of 2016, jobs in the coal industry have lagged. The potential for a recovery, however small, could drive improvement in coal company valuations that have already seen a boost in the back half of 2016, especially if the company has improved the productivity of its smaller workforce.

National Mining Association spokesman Luke Popovich said Trump may rebuild the market's confidence in coal.

"He's a disruptive force and for a sclerotic economy that has been under-performing, this can be a good thing, as we've seen in the stock market and the 'Trump dollar,'" Popovich told S&P Global Market Intelligence. "How enduring this could be is anyone's guess. Still, his outlook toward fossil fuel in general, and coal in particular, may signal to the market a shift away from the complacent thinking about coal's decline."

Popovich said the NMA is expecting that 2017 will be a year of coal market stabilization, with a forecast of higher natural gas prices and a congressional unwinding of rules cumbersome to the U.S. mining industry.

"I wouldn't discount simply the effect that hope, suddenly restored, might have among investors, shareholders, executives, miners and, at a minimum, the end of doom and gloom regarding the industry's prospects," Popovich added.

Terry Headley, a spokesman for the American Coal Council, said he believes that the Obama administration legacy was a torrent of regulation and executive action that has fulfilled a promise to bankrupt anyone aiming to build a coal-fired power plant. While the effect of rules such as mercury emissions limits "may be irreversible," coal will continue to grow globally, Headley said, and a change in regulations could "right the ship here in the United States" for coal producers.

"If we recognize the need for coal in the international arena and support pathways for competitive U.S. participation, and adopt strategies to further development of new coal technologies, we can begin to grow and reclaim market share both domestically and internationally," Headley said.

Headley hopes the elimination of the Stream Protection Rule, the end of a moratorium on federal coal leasing and a nixing of the Clean Power Plan are at the top of a Trump administration agenda.

"The current economy is not what should be expected seven years into an economic recovery. President-elect Trump's policies — as outlined — will lower taxes, increase spending on infrastructure (steel), military equipment upgrades (steel) and help stimulate the nation's economy," Headley told S&P Global Market Intelligence.

"By expanding the broad economy and removing the regulatory shackles, the demand for energy improves and, by extension, coal benefits," Headley said.

The expectation that those "shackles" will be removed is what concerns those who oppose the coal industry.

"I expect that some of the climate and energy accomplishments of the Obama administration will be in the crosshairs of the Trump administration," said Mary Hitt, director of the Sierra Club's Beyond Coal campaign. "… Campaign promises are one thing and getting policies over the finish is something different altogether. Trump is going to be facing a very determined and very fierce opposition in the environmental community and all of our allies."

Jeffery Keffer, president and CEO of Longview Power LLC, is skeptical of Trump's options to reverse coal's production decline but believes that the president-elect's victory offers glimmers of hope for coal-fired power plants.

"There are many reasons Mr. Trump was so successful in Appalachia and the Midwest, but one reason stands out when I speak with our employees, and that is jobs," Keffer said. "Good-paying, middle-class jobs have disappeared from the region over the last 20+ years and people in this region have suffered the consequences. Thus the first and most important measure of Mr. Trump's success would be the retention and creation of those missing middle-class employment opportunities."

Keffer, who runs one of the newest and cleanest coal plants in the nation, is hoping that the construction of modern coal plants to replace inefficient and higher-polluting peers will serve as a way to both reduce emissions and create jobs.

"Clean coal plants like Longview can operate efficiently and at low cost while effectively removing substantially all of the conventional pollutants — sulphur oxides, nitrogen oxides and particulate matter — that should define dirty coal," Keffer said in an interview. "In addition, because of its advanced modern design and operations, Longview is 20% more efficient than the much older coal fleet and emits significantly less CO2. That should be what clean coal means."

A Trump administration could choose to advance technology that supports carbon capture technology. Examples from the field thus far have proven costly.

"Considerable additional research is necessary before carbon capture will be commercially feasible. Instead of pushing tax credits for a technology which is still at the research and development stage, the federal government should focus on tax credits to induce building highly efficient, modern coal-fired plants like Longview that reduce the amount of carbon produced because of their efficiency," Keffer suggested. "Otherwise the market will only build natural gas-fired plants with many fewer employment opportunities and be at risk of becoming dependent on one highly priced volatile fuel for power generation."

Headley and Popovich both supported advancing coal technology to bring down costs of coal plants that are more efficient with lower emissions, though Popovich warned that such programs should avoid making such technologies a "Holy Grail."