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Campaign urges insurers cut ties with US coal as solid Q4'17 earnings continue

A global movement urging insurers to stop investing in coal plans to pivot to the U.S. coal industry as the latest batch of coal producers report gains in the final quarter of 2017.

The Unfriend Coal campaign unveiled a report in late 2017 that said U.S.-based insurers lagged international peers on implementing policies against investing in coal or underwriting coal projects. Since the release of the report, which documented over $20 billion divested from the industry with several companies ending underwriting of global projects, the campaign said it is seeing even more calls for action to distance the insurance sector from coal.

"Now that we see major progress happening in Europe, we intend to shift our focus to the U.S. and to educate an interested public audience here in the U.S. about the essential role the insurance companies play in supporting coal," said Peter Bosshard, coordinator of the Unfriend Coal campaign, noting that the organization has not yet put a lot of focus on the U.S.

The plans comes as the sector experiences legislative boosts from the Trump administration, including a revised version of the tax reform that repealed a top industry concern, the alternative minimum tax, for corporations. The reform also lowered the corporate tax rate to 21% and established a 20% deduction for qualified business income from pass-through businesses including S corporations, LLCs and partnerships.

"I think on a net basis it's going to be a positive for coal companies because of a lowering of rates," Ramaco Resources Inc. Executive Chairman and Director Randall Atkins told S&P Global Market Intelligence. "I think just overall, from a macro comment, I'd say it's beneficial."

Coal companies reporting earnings to investors are already touting the benefits tax reform is bringing to the bottom line. Arch Coal Inc. CFO John Drexler said that thanks to the reduced corporate tax rate, the elimination of the alternative minimum tax and a large deferred tax asset base, Arch's cash tax rate will be "effectively zero for the next decade" under most scenarios it has modeled.

Arch this week reported fourth-quarter 2017 net income of $81.3 million, or $3.64 per share, compared to $33.4 million, or $1.31 per share, a year earlier.

Cloud Peak Energy Inc. and Warrior Met Coal Inc. also reported their fourth-quarter financial results this week.

Cloud Peak reported net income of $17.8 million, or 23 cents per share, in the fourth quarter, compared with $24.5 million, or 39 cents per share, in the prior-year period. CEO Colin Marshall said on a Feb. 15 earnings call that the company continues to be constrained by limited West Coast port capacity but is focused on filling the 5.5 million tons it will ship overseas this year "with the best-quality contracts we can."

Warrior's net income spiked year over year to $97.2 million, or $1.83 per share, from $34.0 million, or 65 cents per share, in the same quarter a year earlier.

Like other coal producers, CEO and Director Walter Scheller said on a Feb. 14 earnings call that Warrior will see huge benefits from tax reform in the coming years, including about $39 million in refundable alternative minimum tax credits in 2019 through 2022.

Coal production at some U.S. basins also registered strength during the final quarter of 2017.

S&P Global Market Intelligence data shows that coal production in the Uinta Basin increased roughly 2.6% in the fourth quarter year over year and 13% in 2017 compared to the previous year. In the Northern Appalachia Basin, the top 25 producers reported total output of 24.4 million tons, up from 21.9 million tons in the prior quarter, while for the 12 months ending in the fourth quarter, coal production was up 6.9% to 95.2 million tons.

Total U.S. coal production fell 1.6% and average mining employment fell 2.3% in the fourth quarter compared to the prior quarter, according to an S&P analysis of federal data. The reported 52,866 average coal mining jobs in the fourth quarter is the lowest total figure since President Donald Trump took office promising a comeback in coal jobs and production.

The week also saw the U.S. Department of Energy announcing $6.5 million in funding split between nine coal technology research and development projects seeking to improve efficiency and lower environmental impacts.

Upcoming events:

American Coal Council: ACC will hold its 2018 Spring Coal Forum on March 6-8 at Sandpearl Resort & Spa, Clearwater Beach, Fla.

U.S. Department of the Interior: The Royalty Policy Committee will hold its second meeting Feb. 28 in Houston.