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Peabody emerges from bankruptcy; coal jobs prove bullish amid market resurgence

It was a bullish week for the U.S. coal sector as the world's largest private-sector producer, Peabody Energy Corp., emerged from a yearlong reorganization April 3, and major firms signaled a willingness to hire amid a market bounce.

Peabody returned to the NYSE on April 4 fresh out of bankruptcy and riding a wave of optimism in the industry. The company emerges more than $5 billion lighter in debt into a market that, after a multiyear decline, is finally starting to see some stabilization in the domestic thermal sector. Meanwhile, international metallurgical coal prices are soaring due to weather disruptions and longer-term factors.

"We believe that 'the New BTU' is well positioned to create substantial value for shareholders and other stakeholders over time," Peabody President and CEO Glenn Kellow said in a recent statement. "Peabody is the only global pure-play coal investment, and we have the scale, quality of assets and people, and diversity of geography and products to be highly competitive."

Added to that upbeat scenario is the ongoing resurgence in coal jobs, which is primarily attributed to improving market conditions. A surge in international metallurgical coal prices and an uptick in domestic power demand as a result of increased natural gas prices has spurred a production bounce after the record lows of mid-2016.

While much of the focus is on the impact of President Donald Trump on the industry, the trend toward employment growth started in the back half of 2016, when U.S. Mine Safety and Health Administration data revealed that coal production was growing. Mining jobs followed, hinting at an upward turn in the fourth quarter of 2016. According to the U.S. Energy Information Administration, year-to-date coal production is up 14.9% as of March 25.

"President Trump is trying his best to help the coal industry because he promised he would, but all the actions he's taken don't change the underlying economics or opinions people have," said Andy Roberts, research director for global thermal coal markets at consultancy group Wood Mackenzie. "So, most everything he does is going to have a modest impact if any."

On the legislative side, miners' welfare was brought to the fore this week when Democratic lawmakers introduced bills in Congress to improve mine safety and benefits for coal miners suffering from black lung disease.

Sen. Joe Manchin, D-W.Va., and Sen. Bob Casey, D-Pa., introduced the Black Lung Benefits Improvement Act of 2017 and the Robert C. Byrd Mine Safety Protection Act of 2017 in the Senate while Rep. Bobby Scott, D-Va., and Rep. Matt Cartwright, D-Pa., introduced the bills in the House of Representatives on April 5, according to a release.

The safety bill would "close glaring loopholes in our nation's mine safety laws" and "would make it more difficult for corporate management to put profits and production ahead of the safety of miners," the release said, by giving MSHA better tools to investigate mines and hold operators accountable.

The black lung bill would allow miners or their survivors to reopen cases where they had been denied benefits after contracting black lung due to "unscrupulous medical interpretations that have since been discredited" used by coal companies, who "routinely deploy an array of unfair tactics to avoid paying miners the benefits they deserve," the release stated.

Another bill that would get miners back to work through a $1 billion allocation for the reclamation of abandoned mine lands, known as the Revitalizing the Economy of Coal Communities by Leveraging Local Activities and Investing More Act, received support from witnesses and lawmakers this week, but some questioned the scope and impact of the legislation at a House Committee on Natural Resources hearing April 5.

Fritz Boettner, a principal in the Geographic Information Systems program at Downstream Strategies in West Virginia, said that additional funds are likely needed to reclaim the roughly $7.5 billion in high-priority sites in the U.S., and that Congress should consider altering the AML fund when and if they renew it in 2021 when the current one expires.

Rep. Liz Cheney, R-Wyo., representing the country's largest coal-producing state, expressed significant concerns about how the bill would be funded. She said expanding the purposes for which the AML funds can be used might ultimately result in Wyoming being on the hook for more contributions toward the AML fund, since the state paid more into the fund than any other. She said that moving the $1 billion out of the fund right now without knowing whether the AML fee would be extended past 2021 was irresponsible.

In West Virginia, lawmakers are still aiming to offer a boost to coal miners in the state before this year's session ends April 8, with bills moving forward that could offer severance tax relief or protect them from environmental lawsuits stemming from water pollution.

Coal producers this week also took special issue on U.S. involvement in the Paris Climate pact. A handful of coal producers have joined a growing number of energy companies urging the Trump administration to stay in the Paris agreement in hopes of shaping the climate change debate.

According to a Reuters report, Cloud Peak Energy Inc., Arch Coal Inc. and Peabody Energy Corp. have all expressed their support for the climate change agreement in recent weeks as Trump has called for input from energy companies likely to be affected by the effort.

"The president has the opportunity to say, 'We're going to remain engaged, we're going to stop the policies aimed at picking winners and losers, that are persecuting coal, for example,'" said Richard Reavey, Cloud Peak's vice president for government and public affairs.

The week also saw FBR & Co. maintain its "outperform" rating on Contura Energy Inc. and raise its price target from $100 to $102 based on strong results reported in the prior week.

"The trading business especially, with an EBITDA contribution of $33 million, outperformed our expectations," analyst Lucas Pipes noted, adding that the company showed an ability to capitalize on strong metallurgical coal prices.

The note said Contura's balance sheet is supported by low operating costs that can withstand volatility through coal markets. Pipes wrote that Contura is "one of the most resilient coal producers in the U.S. today."

Pipes also projected an increase in metallurgical coal prices due to flooding from tropical cyclone Debbie, which is expected to disrupt rail transportation between Australian mines and ports for more than a month.

"We can expect severe congestion on the lines to keep pressure on the export markets," he wrote in an April 3 report. "Naturally, with the world's largest met coal region unable to export anywhere near full capacity, the met price has increased. ... We believe that these events raise the probability of a [Q2'17] benchmark settlement above $175/[tonne]. We believe a settlement may still be negotiated over the coming weeks."

Future events:

The National Coal Council's Spring Annual Meeting 2017: The National Coal Council is hosting its Spring Annual Meeting on April 18-19 at the Sheraton Suites Old Town Alexandria in Alexandria, Va.

The 2017 Eastern Fuel Buyers Conference: The 2017 Eastern Fuel Buyers Conference will be held May 3-5 at Disney's Yacht Club Resort in Buena Vista, Fla.

Virginia Coal & Energy Alliance, Southern States Energy Board 2017 Conference: VCEA and Southern States Energy Board will hold their 38th annual conference May 22-23 at MeadowView Conference Center in Kingsport, Tenn.