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Top coal producers' market value tanks; court confirms Cloud Peak's Ch. 11 plan

Highlighting the toll the last few quarters have taken on the U.S. coal sector, an S&P Global Market Intelligence analysis revealed that the top 10 coal producers' market capitalization plummeted 59.4% from early January to mid-November.

All 10 of those coal companies saw double-digit percentage decreases over the period, the smallest of which was an 18.6% decline posted by Rhino Resource Partners LP. The declines come amid reduced domestic demand and weaker export prices that have plagued the U.S. coal sector in recent quarters after a strong international market in 2019. The market value of five of the top 10 producers tanked by at least half over the period.

Peabody Energy Corp., which topped the list in January, was surpassed by both Alliance Resource Partners LP and Arch Coal Inc. in terms of market value as of Nov. 22. Those two companies were the only ones with a value exceeding $1 billion at the time.

In other troubling news for the sector, a recent report showed that insurance companies are increasingly moving away from the coal industry, with the number of insurers withdrawing coverage doubling in 2019. A scorecard from the Unfriend Coal campaign, which seeks to drive insurers from the industry, noted that about 46% of the reinsurance market and 37% of the insurance industry's global assets plan to exit their dealings with the coal sector.

"We've seen a momentum on a different level this year," Peter Bosshard, coordinator of the Unfriend Coal campaign and author of the report, said in an interview. "It has become physical for so many people — whether you live in California in the Bay Area or the Midwest where the floods didn't stop this spring and summer or in the Plains or the southeastern U.S. — so many people were confronted with the impact of a changing climate in unprecedented ways. A lot of people are freaking out, and rightfully so."

There were several developments in coal producers' bankruptcy cases in the week ended Dec. 6. A spokesperson for the United Mine Workers of America said in an interview that the union is preparing to renegotiate its collective bargaining agreements with Murray Energy Corp. as the latter proceeds through its bankruptcy reorganization. Murray Energy miners account for about one-fifth of the union's members.

"At the end of the day, the contract that we're able to get ratified is rarely as good as what we're forced to give up," said Phil Smith, the union's director of communications and governmental affairs.

Murray Energy filed its bankruptcy reorganization plan for court approval last week. The proposal includes a plan to sell most of its assets and wind down its estates. It also contains a proposal to establish a new entity to act as a stalking horse bidder during the auction. The plan states that the proposal would allow the debtors to emerge from bankruptcy and ensure that related assets continue operating and employing thousands of people.

Another federal court approved Cloud Peak Energy Inc.'s restructuring plan and disclosure statement last week. The court had previously approved the sale of the debtor's Powder River Basin mines to Navajo Transitional Energy Co. LLC, which has since faced some challenges securing bonding for the mines. A board member with the Powder River Basin Resource Council alleged that Navajo Transitional Energy may not have the funds to take on Cloud Peak Energy's tax and royalty debt, warning that "state regulators need to make sure taxpayers don't get left holding the bag."

Following coal companies' discussions regarding shareholder returns on their third-quarter earnings calls, two analysts said they do not expect to see a substantial increase in free cash flow in the sector heading into 2020. Benjamin Nelson, senior credit officer and lead coal analyst at Moody's, said the industry in general will have less capacity to devote to share repurchases than it did in 2017 and 2018.

"We think cash flow generation in '19 will be down," Nelson said. "It'll be down more in 2020, and that's going to limit companies' ability to do share repurchases."

Upcoming events

American Coal Council: The ACC will hold its 2019 Coal Trading Conference from Dec. 9-10 in New York City.

Coaltrans USA: The conference will be held Jan. 23-24, 2020, in Miami.