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Only 2 US coal companies not expected to report a loss in Q2'20

All but one of the top publicly traded U.S. coal companies are expected to report second-quarter earnings results lower than both the previous quarter and the year-ago period while just two are expected to report positive earnings per share, according to an analysis of analyst estimates.

Like most of the economy, coal miners have been heavily affected by the COVID-19 pandemic. However, the industry was already struggling with the structural decline of its domestic customer base and weakening export prospects long before the virus delivered a blow to coal demand.

"The U.S. coal industry has weakened after taking the brunt of lower electricity demand and is now highly vulnerable to resurgent coronavirus infections that could further reduce demand for coal in a downside scenario," Moody's Investors Service analyst Benjamin Nelson said in a July 15 note. "We expect very weak second-quarter earnings for coal producers under our current baseline scenario."

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Moody's took negative ratings actions in the first half of the year on most North American coal companies it covers. Only low-cost, metallurgical coal-focused producers such as Arch Resources Inc. and Warrior Met Coal Inc. have not experienced a recent downgrade to long-term ratings or an outlook revision, Nelson said. That is because they have stronger discretionary cash flow generation than their peers.

"The arrival of the coronavirus outbreak in the U.S., combined with the ongoing secular decline in demand for thermal coal and several quarters of price weakness for export coals, significantly reduced coal producers' expected cash flow, and in some cases narrowed their expected compliance with financial maintenance covenants," the Moody's report continued. "We will place significant emphasis on management's plans for maintaining liquidity as communicated during second-quarter earnings calls."

In total, Moody's expects aggregate EBITDA for rated coal producers will fall more than 50% before a modest recovery in 2021.

Similarly, Clarksons Platou Securities expects another weak earnings season for metals and mining companies with coal names getting hit the hardest, according to a July 14 note. That is due to weak demand for both metallurgical coal used in steelmaking and thermal coal used for power generation. B. Riley FBR analyst Lucas Pipes said in a July 7 note that all U.S. metallurgical coal producers likely have negative free cash flow to equity at current spot prices, but still recommended exposure to Arch Resources and Warrior Met Coal for investors with longer horizons.

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Though the improvement is expected to be slight, Hallador Energy Co. is the sole U.S. coal company likely to see better results compared to the previous and year-ago period among a set of nine U.S.-based, publicly-traded coal companies analyzed by S&P Global Market Intelligence. The company, which was approved for a US$10 million loan in April under the Paycheck Protection Program aimed at supporting companies affected by the COVID-19 pandemic, is an Illinois Basin-focused thermal coal producer based in Indiana.

Only two companies are expected to report positive earnings per share in the second quarter, Hallador and Natural Resource Partners LP, a diversified natural resources firm. Metallurgical coal producer Contura Energy Inc. is expected to report the greatest loss per share based on analysts' consensus, estimated at $3.26.

Arch Resources and Peabody Energy Corp., two large coal producers that are fighting the Federal Trade Commission over a proposed joint venture, are also expected to report earnings per share losses of $2.83 and $1.28, respectively.