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Murray Energy enters coking coal market, tops Cloud Peak in 2018 production

In yet another example of the perceived strength of the metallurgical coal sector, thermal coal producer Murray Energy Corp. is purchasing Mission Coal Co. LLC's coking coal assets, while another pure-play thermal coal producer's financial situation continued to deteriorate this week.

Mission Coal, which filed for bankruptcy protection in October 2018, will sell some of its mines in West Virginia and Alabama to Murray Energy in a $264.7 million deal, but a few other assets are being sold to other companies.

"Murray Energy's acquisition of the Mission assets provides a significant entrance into the metallurgical coal market, allowing for diversification of its portfolio of quality mining assets," the company said in a March 28 news release.

As Murray Energy takes its first step into the metallurgical coal market, Cloud Peak Energy Inc., which avoided the wave of metallurgical-fueled bankruptcies a few years ago, may soon be delisted from the NYSE. The exchange suspended trading of the pure-play Powder River Basin producer's shares this week and has started the delisting process, a move the company said it will not appeal.

Murray Energy also overtook Cloud Peak in production in 2018, moving up to the nation's third-largest coal producer with 60.5 million tons, while Cloud Peak sank to fourth place with 49.5 million tons. While Murray Energy's output was relatively flat in 2017-2018, Cloud Peak's production dropped by 14% over the period.

Two industry observers said the recent flooding in the Midwest has likely most affected Powder River Basin coal shipments as well, though one said the miners tend to bounce back from similar events.

The West Virginia coal industry may benefit from legislation enacted this week. Gov. Jim Justice signed two bills aimed at helping the state's coal sector, including one that would provide a 35% tax rebate on new mining machinery and equipment. Analysts said the rebate could benefit Arch Coal Inc. significantly, shaving at least $100 million off of its planned investment into a metallurgical operation in the state.

While Arch's capacity project was largely welcomed by investors, some observers are concerned that Illinois Basin producers' expansion projects will lead to overproduction in the region. Between increased production, declining domestic demand and lower global thermal pricing, there may be more supply and fewer places for it to be sold.

Two studies by think tanks that came out this week cast a dark cloud over the sector. One from Energy Innovation said that nearly three-quarters of existing U.S. coal plants are more expensive to run compared with building wind and solar generators. Another from the Institute for Energy Economics and Financial Analysis said the 2018 coal export market likely hit a "high-water mark."

Upcoming events

Global Energy Summit: Columbia University's Center on Global Energy Policy will host its sixth annual global energy summit April 10 in New York City.

National Coal Council: The NCC will hold its spring meeting and 35th anniversary celebration April 11-12 in Washington, D.C.

Society for Mining, Metallurgy & Exploration: The SME will hold its seventh annual Current Trends in Mining Finance Conference on April 28-May 1 in New York City.