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BlackRock to abandon thermal coal; EIA sees positive shift for sector in 2021

Investment giant BlackRock Inc. announced plans last week to quickly distance itself from most of the thermal coal space.

CEO Larry Fink said the company will rid its discretionary active investment portfolios of public debt and equity securities of companies earning more than a quarter of their revenue from thermal coal production, in a Jan. 14 letter.

"Thermal coal is significantly carbon intensive, becoming less and less economically viable, and highly exposed to regulation because of its environmental impacts," BlackRock wrote in a letter to its clients. "With the acceleration of the global energy transition, we do not believe that the long-term economic or investment rationale justifies continued investment in this sector."

In addition to the potential for more investor scrutiny, U.S. coal companies' cash holdings declined in the first three quarters of 2019 compared with the year-ago period. An S&P Global Market Intelligence analysis showed that weak international pricing coupled with falling domestic demand began to cut into the coal sector's cash holdings. The decrease could start to limit 2020 share buybacks and other capital return projects.

While the industry's trajectory for the year is looking less than stellar, the U.S. Energy Information Administration projected it may change course in 2021. The administration expects the decline in coal production and exports to slow considerably next year. On the seaborne front, export coal shipments are forecast to drop 10.6% this year to 82.6 million tons and then tick up slightly to 83.2 million tons the following year.

But western exports continue to face headwinds. The Richmond City Council voted to phase out storage and handling of coal within city limits, which will affect a port operated by Levin-Richmond Terminal Corp. The company's CEO has reportedly said the ban will put the company out of business and threatened to sue.

There were several developments related to debtor Blackjewel LLC in the week ended Jan. 17 as well. Notably, Kentucky regulators told a federal bankruptcy court that the debtor and its affiliate Revelation Energy LLC have racked up about 30% of the state's total outstanding noncompliances issued. The Kentucky Energy and Environment Cabinet wrote in a court filing that Revelation Energy had 157 outstanding notices of noncompliance out of the state's total 547 issued by the end of 2019.

"The cabinet remains willing to work with debtors and those parties purchasing Kentucky permits from the estates, but unfortunately, there has been no meaningful effort by debtors to resolve the environmental liabilities that remain the responsibility of the estates. ... The cabinet has serious concerns regarding both the reclamation liability and the prospect of correcting the numerous environmental violations incurred by debtors," the filing stated.

Other Kentucky regulators continue to dispute with the company that recently purchased a Blackjewel mine. Black Mountain Resources LLC tried to relicense the D-2 Beechfork mine, which had ceased operations and was abandoned last November. Jesse Sizemore, a company representative, blamed the Kentucky Division of Mine Safety for the three months he invested into trying to reopen the operation. Officials countered that they have not received a plan critical to exploring the mine.

"We are continuing to work closely with Black Mountain Resources to enable it to proceed with its plans as quickly and as safely as possible," Rebecca Goodman, the Energy and Environment Cabinet secretary, said in a statement.

And finally, an attorney for former Blackjewel President and CEO Jeff Hoops said the former executive will provide an in-depth response to an investigation into his financial dealings requested by the company and a committee of creditors. His attorney wrote that the request was based on "unsupported general reactions and hyperbole." The motion for discovery included several businesses and people associated with Hoops.

Upcoming events

Coaltrans USA: The 2020 conference will take place Jan. 23-24 in Miami.

Coal earnings for the fourth quarter of 2019: Alliance Resource Partners will kick off the U.S. coal sector's earnings season with a Jan. 27 conference call.

15th Annual Southern African Coal Conference: IHS Markit will hold a conference from Jan. 29-31 in Cape Town, South Africa.

American Coal Council: The American Coal Council will hold its Spring Coal Forum 2020 from March 3-5 in Fort Lauderdale, Fla.